India's finance minister Arun Jaitley's meeting with the empowered committee of state finance ministers on good and services tax (GST) on Tuesday ironed out matters relating to dual control, compensation guarantee for revenue loss to states and other key issues.
The development is likely to help government pass the crucial Constitution (122nd) Amendment Bill for GST in the upper house of the Indian Parliament, the Rajya Sabha, in the ongoing monsoon session and steam roll opposition party Congress' objections.
West Bengal state finance minister Amit Mitra, who heads the empowered panel, said there was consensus among states that businesses with turnover of up to 1.5 crore Indian Rupees should come under their jurisdiction while those with turnover of over Rs1.5 crore would be under the dual control of the state concerned and the Centre.
"There was a standing issue on the question of dual control... Further, the states were also satisfied with wording (in the Constitution Amendment Bill) by which states will be guaranteed five years of compensation if there is any loss of revenue," he told the reporters after the meeting.
Manufacturing states like Gujarat, Maharashtra, Tamil Nadu and others have expressed concern over loss of revenue due to GST, which is a destination tax.
The Constitution Amendment Bill for GST, which will subsume all indirect taxes to create one single levy for the entire market, is stuck in the Rajya Sabha due to differences between the ruling National Democratic Alliance (NDA) and main opposition Congress over it.
While the lower house (Lok Sabha), where the NDA has majority, has passed the Bill, the government failed to push it in the upper house for want of support.
One of the major point of dispute is the GST rate. Congress has demanded that the rate be capped at 18 per cent and included in the Constitution. Mitra said the GST rate could be decided when the law is enacted. He said the "wording" for it had been "worked out".
"The question of (GST) rate was very important. A wording has been worked out which essentially means that the incident of tax on the common man has to be significantly reduced (currently it is over 30 per cent), at the same time there should be a safeguard for existing level of revenues of the Union and states.These are the two objectives. A broad framework of words has been worked out and we hope that all political parties would be in agreement," he said.
Mitra said the issue of disbursement of funds to the states from central consolidated pool was also discussed.
“When the money goes into the Central government’s consolidated pool, it becomes difficult for that money to come out to the state. On that, there is a broad consensus and hopefully that has been resolved, which will be reflected in the Constitutional Amendment,” he said.
Mitra, however, did not say anything on the 1 per cent additional tax that is one of major bone of contention with the Congress.
It has asked for the extra levy, which will imposed on goods that are moved between states, to be completely scrapped as it will have a cascading impact and push up prices of goods. The industry has also opposed it.
Rajeev Dimri, leader, indirect tax, BMR & Associates, said resolution of dual control issue was a small step in fine-tuning the GST Bill but it does not have to be included in the Constitution.
“It can easily be done by administrative or legislative pronouncements rather than in the Constitution,” he said.
He said any change in the language of the Constitution Amendment Bill at this stage would mean it will have to go back to the Lok Sabha for approval.