Centre, states strike a compromise

The Centre and states are now only one hurdle away from striking a consensus on the blueprint for the roll out of the Goods and Services Tax (GST).

The second day of the meeting of the GST Council saw both sides agree to the compensation formula wherein the Centre agreed to absorb any spillover of revenue losses accruing on account of the adoption of the new tax regime; at present it is pegged at Rs 50,000 crore. 

The stage is now set for a dialogue on the final agenda item: cross empowerment. The council will meet on January 3-4 to resolve this issue. 

The panel, which met for the seventh time since the Constitutional Amendment to replace central and state taxes with a Goods and Service Tax was approved in mid-September, tweaked the periodicity of payment of compensation for loss of revenue to states for implementation of GST to bi-monthly instead of previously decided quarterly payment.

Also, the Council decided to create the kitty for the compensation ‘from any other tax’ besides the cess on luxury and sin goods it had previously approved, as states saw revenues being dented by slowdown in economic activity and resultant tax collections following demonetisation. 

The GST Council will meet again and take up the issue of which part of tax payers should be controlled by the Centre and who should be governed by the states after a single tax will replace levies like central excise, service tax and VAT. The dual control is also part of the Integrated-GST legislation that Parliament needs to pass before the new regime is rolled out.

But for this stumbling block, mirror legislations of Central-GST and State-GST, that have to be approved by Parliament and state assemblies respectively, neared finality with most clauses agreed upon. Some states like Bengal and Kerala want a minimum turnover criteria be fixed to decide who control which assessee, a proposal the Centre is not agreeable to because states lack expertise on levies like service tax.

Finance Minister Arun Jaitley said the law to provide for compensation to the states for loss of revenue was also approved.