Sanjeev Pargal
JAMMU, Nov 26: In a significant development, the Empowered Committee (EC) of Finance Ministers of entire country on Goods and Services Tax (GST) has submitted its final recommendations to the Union Finance Ministry on revised draft bill, which would now go to the Parliament for its final nod before the GST was implemented in India like 140 other countries, where it was already in force.
“The Jammu and Kashmir would implement the GST with a rider that its special status would be maintained at all costs,” Finance Minister Abdul Rahim Rather, who heads the Empowered Committee, told the Excelsior today.
He said the recommendation that Jammu and Kashmir’s special status should be maintained while implementing the GST was part of a series of recommendations that were adopted with complete consensus of the Empowered Committee. In fact, he added, all recommendations the EC sent to the Union Finance Ministry were adopted with consensus by all 28 States and Union Territories of India and there was no dissent note from any of them.
As per recommendations of the Empowered Committee, the Centre would have the powers to impose tax on `Sales of Goods’, a power that hitherto is vested with the State only while the States would be empowered to impose tax on ‘Services’, a power that lied with the Centre only so far.
“The final draft prepared by the EC and submitted to the Centre means that both Centre and States would have the powers to impose tax on Sales and Services of the good when the new GST regime comes into force,” the Finance Minister said, adding that the Empowered Committee has agreed on distribution of powers under the GST in toto.
Noting that this was for the first time in 13 years when the concept of GST was first devised that there was complete consensus on recommendations in the Empowered Committee of Finance Ministers, Mr Rather said: “the EC didn’t fully agree with revised draft of the Union Finance Ministry that had been sent to the Committee. The Finance Ministry would have to revise the draft by incorporation our recommendations whenever they decide to introduce the bill in the Parliament”.
The major recommendations of the Empowered Committee included that the Centre would have to make a Constitutional commitment to the States that they would be compensated if they suffered revenue loss due to implementation of the GST. The States had apprehensions on this account, which the EC took care of and recommended to the Centre to ensure Constitutional commitment to the States that they would be compensated if they suffered losses due to implementation of the GST regime.
The EC proposed an independent mechanism to ascertain whether the States had indeed suffered losses.
Another important recommendation of the EC pertained to exemption of petroleum products and alcohol from the purview of the GST. The Committee wanted the petrol products and alcohol out of the GST on the ground that they would suffer heavy losses of revenue.
Pointing out that the Government of India had in the previous draft agreed to exempt alcohol and petro products from the purview of GST, Mr Rather said the revised draft the Centre had submitted to the EC had subsumed these two items in the GST.
“The EC didn’t agree with the revised draft of the Union of India and recommended that petroleum products and alcohol should be kept out of the purview of the GST,” the Empowered Committee chairman said.
Mr Rather said the Empowered Committee vetoed another proposal of the Union Finance Ministry to keep powers of declaring any goods any time as that of special importance (declared goods).
“The EC opposed this proposal on the ground that the Centre could announce some items as ‘declared goods’, which would reduce the tax rate on them, say from 12. 5 per cent to 3 or 4 per cent that would cause revenue loss to the States. The EC unanimously opposed this clause and recommended to the Centre that the category of `declared goods’ should be kept out of the purview of the GST.
Through another recommendation, the EC didn’t agree with the Centre proposal of keeping Union list and State list in the GST.
Mr Rather said the EC agreed with rest of the proposals they had received including revised draft bill from the Finance Ministry, recommendations of the Parliamentary Standing Committee (PSC) headed by former Finance Minister Yashwant Sinha, which took two and a half years to vet the draft bill and report of the Internal Committee of the EC. The EC took all relevant material with it into consideration before finalizing its recommendations to the draft bill of the Finance Ministry.
A significant recommendation pertaining to Jammu and Kashmir was on implementation of the GST. The EC agreed that special status of Jammu and Kashmir should be maintained while implementing the GST.
“It has been written in Article 368 of the Constitution of India on how to implement it in J&K. It would apply to J&K through Article 370 of the Constitution of India, which means that the Centre had to take concurrence of the State Government before making it applicable in the State. It won’t apply automatically to the State.
“A way out has been found under which Jammu and Kashmir would follow other States in implementation of GST in the country and simultaneously its special status would also be maintained,” Mr Rather said, adding that this was also one of the major recommendations of the EC to the Centre.
Worthwhile to mention here that the UPA Government would require 2/3rd majority to get the GST through in the Parliament, which was not possible without the support of the opposition parties. If the Parliament approved the GST regime with two-third majority, the concurrence of 50 per cent States was also required for implementation of the new tax structure in the country.
It was in 2000 that then Atal Behari Vajpayee led NDA Government had first started discussions on GST by setting up an Empowered Committee, which was then headed by Asim Dasgupta, then Finance Minister, West Bengal. It was given the task of designing the GST model and overseeing the IT back-end preparedness for its rollout.
It was considered to be a major improvement over the pre-existing Central Excise Duty at the national level and the Sales Tax system at the State level.
Keeping this overall objective in view, an announcement was made by P Chidambaram, the Union Finance Minister, during the Central budget of 2007-2008 that the GST regime would be introduced from April 1, 2010 and that the Empowered Committee of State Finance Ministers, on his request, would work with the Central Government to prepare a road map for introduction of GST in India.
After this announcement, the Empowered Committee of State Finance Ministers decided to set up a Joint Working Group on May 10, 2007, with the Adviser to the Union Finance Minister and the Member-Secretary of Empowered Committee as co-convenors and the concerned Joint Secretaries of the Department of Revenue of Union Finance Ministry and all Finance Secretaries of the states as its members.
The Joint Working Group, after intensive internal discussions as well as interaction with experts and representatives of Chambers of Commerce and Industry, submitted its report to the Empowered Committee on November 19, 2007.
This report was then discussed in detail in the meeting of Empowered Committee on November 28, 2007. On the basis of this discussion and the written observations of the States, certain modifications were made, and a final version of the views of Empowered Committee at that stage was prepared and was sent to the Centre on April 30, 2008. The comments of the Government of India were received on December 1 the same year.
However, since then several drafts and revised drafts were prepared but a consensus eluded the Empowered Committee, which after Asim Das Gupta was headed by Sushil Modi, the BJP leader and Finance Minister of Bihar. However, after the BJP quit Nitish Kumar Government in Bihar, the Centre had entrusted the major responsibility of heading the prestigious Empowered Committee to J&K’s Finance Minister Abdul Rahim Rather.
“World over, GST rates are typically between 16 per cent and 20 per cent. In India, it is likely to be the same,” sources said. The tax-rate under the proposed GST would come down, but the number of assesses would increase by 5-6 times. Although rates would come down, tax collection would go up due to increased buoyancy,” sources said.
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