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Centre, States strike last minute compromise deal on GST; Bill likely to be tabled in Current Session

16 Dec 2014 Evaluate

In a major breakthrough on country’s largest indirect tax reform, the Centre and states at the last minute reached a consensus on the broad contours of the proposed Goods and Services Tax (GST), which is likely to be tabled in the current session of Parliament. The GST has been hanging fire for about seven years now as states remained to be concerned over their revenue losses on introduction of the new tax regime.

The breakthrough came last minute after the Centre decided to keep petroleum out of the goods and services tax (GST) purview in return for states agreeing to subsume entry tax in the new tax regime, proposed to be implemented from April 2016.

However, on the issue of compensation to states for revenue loss because of subsuming of all indirect taxes in the GST, the Finance Ministry underscored that it would seek legal opinion on how it can be accommodated in the Constitution Amendment Bill that it wants to bring in the ongoing winter session of Parliament.

As regards the compensation for phasing out of Central Sales Tax (CST), Jaitley already announced releasing Rs 11,000 crore to states for revenue loss till 2010-11 fiscal. Clearance of CST compensation arrears has been a bone of contention between Centre and states.

Central Sales Taxes (CST), a tax imposed on sales or purchases of goods in the course of inter-State trade or commerce, was reduced from 4% to 3% in 2007-08 and further to 2% in 2008-09 after the introduction of Value-Added Tax (VAT). The Centre had then promised the states that it would bear losses due to reduction of CST.

As part of the GST rollout, the CST has been phased out and reduced to 2% from the earlier 4%. However, with GST rollout missing several deadlines, the losses were being suffered by States since the Centre collects CST and distributes it among states. Hence, in the last minute compromise deal, the government decided to seek legal opinion on compensation in the Constitution Amendment Bill that it wants to bring in the ongoing winter session of Parliament.

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