Centre-state consensus raises hope for GST implementation

Since the advent of P Chidambaram as finance minister, we have seen the Centre address contentious issues with the states in a more pragmatic manner. The initial interactions with the chairman of the empowered committee of finance ministers and its members, followed by the formation of two sub-committees for addressing concerns around central sales tax (CST) compensation, design, coverage, rates and aspects of Constitution Amendment Bill have borne fruit.

The last two days have brought further clarity on the GST road map with the empowered committee debating the suggestions of the sub-committees on CST compensation and GST design and coming to a consensus on these contentious issues. It's indeed an important milestone and augurs well for the progress of GST, a major tax reform which can be catalyst for growth and competitiveness of the Indian industry, in these times of economic slowdown.

The consensus that has emerged on GST structure, rates and base are the facts we need to ponder on as these clearly impact the final design of GST when rolled out. First and foremost the Centre has given in to the demand of the states by deviating from a single uniform GST rate to a more acceptable floor rate with a narrow band, more on the lines of the European Union. Well, while this may not be the most desirable, it's definitely pragmatic, considering the demand of the states and the ground realities. How these floor rates emerge within states on categories of goods and its consistency is something we have to wait and watch for the common market concept to work. We have witnessed the value added tax (VAT) experience, and over the years we have seen several deviations in many states, which is a cause of concern.

The revenue-neutral rate is an area where still some work and consensus is required and a panel will be looking into this to address the concerns of the states of any potential revenue losses in transition. This discussion on the revenue neutral is important as that would decide the GST rate, which is also linked to the base. The news on the exclusion of petroleum products from the Constitution Amendment Bill, is really a welcome step, and now it's up to the states to come to a decision on having this key sector within the GST, which would be most prudent and also expand coverage.

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