With less than a week to go for United Progressive Alliance’s second maiden Budget, the government seems far away from finalising a firm roadmap to goods and services tax (GST). CNBC-TV18 reports that at this stage, it looks like the Budget could choose the soft option of merely mentioning its intent of introducing GST by April 1, 2010.Also Read: Meeting GST's 2010 deadline difficult: PwC Here is a verbatim transcript of Abhijit Neogy’s comments on CNBC-TV18. Also watch the accompanying video.The Government is actively considering a proposal to compensate states for more than th
e first three years of implementation of GST. The compensation will be made to states which incur a loss on transition to GST and the Finance Ministry may also set up a fund to make compensation payouts. A final decision on this will be taken in the consultation with the thirteenth finance commission being headed by Vijay Kelkar. The government believes this will be enough incentive to bring dissenting states on board. However, there is still no consensus on the GST rate. Kelkar believes the government should keep the rate low and broaden its ambit to include the railways and the housing and construction sectors.K Jose Cyriac, Additional Secretary-Revenue, Ministry of Finance, said, “We are working out a compensation mechanism with the thirteenth finance commission. As long as the compensation mechanism is good, there is no reason why states should not join in.” The other problem relates to inter state movement of goods. The Finance Ministry has admitted it is getting very difficult to design a flawless input tax credit mechanism under the GST regime. That's because, with GST being collected at the point of destination, many manufacturing oriented states are opposing GST fearing massive revenue losses. Then, there are procedural issues like needing a constitutional amendment for empowering states to tax services, something which is time consuming and politically demanding. That's one very important reason why the April 1, 2010 deadline is likely to be missed though the government is still putting on a brave front.
e first three years of implementation of GST. The compensation will be made to states which incur a loss on transition to GST and the Finance Ministry may also set up a fund to make compensation payouts. A final decision on this will be taken in the consultation with the thirteenth finance commission being headed by Vijay Kelkar. The government believes this will be enough incentive to bring dissenting states on board. However, there is still no consensus on the GST rate. Kelkar believes the government should keep the rate low and broaden its ambit to include the railways and the housing and construction sectors.K Jose Cyriac, Additional Secretary-Revenue, Ministry of Finance, said, “We are working out a compensation mechanism with the thirteenth finance commission. As long as the compensation mechanism is good, there is no reason why states should not join in.” The other problem relates to inter state movement of goods. The Finance Ministry has admitted it is getting very difficult to design a flawless input tax credit mechanism under the GST regime. That's because, with GST being collected at the point of destination, many manufacturing oriented states are opposing GST fearing massive revenue losses. Then, there are procedural issues like needing a constitutional amendment for empowering states to tax services, something which is time consuming and politically demanding. That's one very important reason why the April 1, 2010 deadline is likely to be missed though the government is still putting on a brave front.
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