ET Bureau India’s move to adopt a goods and services tax (GST) apparently faces fresh hurdles, with states unwilling to accept the design proposed by the Centre. But these are not differences that cannot be overcome. There has to be give and take in a grand bargain. Both the Centre and states should show more flexibility. The biggest worry for states is over the compensation for losses arising due to the transition to GST. That is the reason states want to keep petroleum products, which account for 26 per cent of their revenues, out of GST.
The Centre must promise to compensate states fully for whatever revenue losses the latter might suffer. There will be no reason then to keep petro-products or even liquor out of GST. Likewise, states should agree to purge levies such as central sales tax, entry tax and octroi that distort local production and create barriers to seamless movement of goods. Exemptions to GST should be kept to the minimum.
Pooling of sovereignty is the reality of a globalised way of doing business. There are limits to states crying loss of autonomy. Yet, considerable leeway is possible here, too. States should be free to set their own GST rates if they wish to, though ideally they should not do so.
Two, states should also be given complete control over small traders in the new tax regime: they can collect and pass on the Centre’s levies as well. The adoption of GST needs two amendments to the Constitution: new powers for the Centre to tax goods up to the retail stage and for states to tax services. Parliament should pass them at the earliest. Services account for over 56 per cent of the country’s GDP.
Service tax collections are budgeted to grow by 31 per cent to touch Rs 2,15,973 crore this fiscal year. Revenues from this source are also higher than both the budgeted excise and customs collections for this fiscal, showing the growing importance of services. Imports will also attract GST and boost states revenues. A simple tax system and a broader tax base will ensure faster growth in revenues for states. The design and structure can always be improved. All states should see reason and come on board.
The Centre must promise to compensate states fully for whatever revenue losses the latter might suffer. There will be no reason then to keep petro-products or even liquor out of GST. Likewise, states should agree to purge levies such as central sales tax, entry tax and octroi that distort local production and create barriers to seamless movement of goods. Exemptions to GST should be kept to the minimum.
Pooling of sovereignty is the reality of a globalised way of doing business. There are limits to states crying loss of autonomy. Yet, considerable leeway is possible here, too. States should be free to set their own GST rates if they wish to, though ideally they should not do so.
Two, states should also be given complete control over small traders in the new tax regime: they can collect and pass on the Centre’s levies as well. The adoption of GST needs two amendments to the Constitution: new powers for the Centre to tax goods up to the retail stage and for states to tax services. Parliament should pass them at the earliest. Services account for over 56 per cent of the country’s GDP.
Service tax collections are budgeted to grow by 31 per cent to touch Rs 2,15,973 crore this fiscal year. Revenues from this source are also higher than both the budgeted excise and customs collections for this fiscal, showing the growing importance of services. Imports will also attract GST and boost states revenues. A simple tax system and a broader tax base will ensure faster growth in revenues for states. The design and structure can always be improved. All states should see reason and come on board.
Get Unlimited Access to The Economic Times
