States demand full compensation for 5 years after GST rollout

Thursday, Jun 4, 2015,20:47 IST By metrovaartha A A A

New Delhi | States today pressed for Centre compensating fully for the loss of revenue in the first five years of GST replacing their taxes, a position that may create hurdle in plans for roll out of new tax regime from next year.
Although the Union Government has agreed to compensate states fully in the first three years and partially in fourth and fifth year, the states have demanded for full compensation for the five-year period.
The issue of compensation, besides other matters, was raised at the meeting of the Empowered Committee of State Finance Ministers, headed by Kerala Finance Minister K M Mani, here. Observing that most of the States have welcomed GST because it is beneficial for both states and Centre, Mani said, The biggest concern is about the compensation.
States are worried about the revenue loss. The central government stand is that compensation will be given in phased manner. First three years full compensation, Fourth year 75 per cent and fifth year 50 per cent that is the formula of government of India but states are asking for the full payment for five years, Mani said.
These concerns will be communicated to the select committee of the Rajya Sabha which is scrutinising the GST Bill. We are discussing and deliberating it. The final views will be presented before the select committee on June 16, he added.  Moreover, he said that for tobacco and tobacco products states should be allowed to levy additional sales tax over and above GST.
Besides, some states have also favoured abolition of entry tax, he said, adding certain states have demanded that purchase tax is not merged in GST, and if it is merged, 15 years compensation is awarded. He said there was no discussion on the revenue neutral rates. Revenue neutral rates we have not yet finalised, decided. We are discussing that.
Discussion is not complete, he said. He further said that there is a provision of 1 per cent additional tax but some states have apprehension about that. Some states have objected that because it will create cascading effect, he said. We will give it final shape before presenting to select committee, he added.
On being asked on confident of meeting April 1 deadline, Mani said, Yes. Touted as the single biggest indirect tax reform since independence, the GST will subsume various levies like excise duty, service tax, entry tax and octroi.