Govt to tweak GST Bill, with petro products in ambit

Financial Express, September 20, 2014

The government is planning to reintroduce the Constitution (115th Amendment) Bill for Goods and Services Tax (GST) in the winter session of Parliament with some significant changes from a previous version that lapsed: Petroleum products will be subjected to GST but they will be zero-rated initially; all entry taxes levied by states except octroi will be subsumed in the proposed comprehensive direct tax.

By keeping petroleum products, a major source of revenue for the Centre and states, in the GST ambit, the government wants to ensure that the integrity of GST (and with that its ability to militate against cascading of taxes) is not compromised. Petroleum being the building material for many downstream industries, its inclusion in GST would keep the tax trail (and the facility of input tax credit) intact. But the Centre and states will, till the latter agree that all taxes on these products can be collapsed into GST, continue to tax these products outside the GST system.

GST is meant to create a single market across the country and experts reckon that it could generate additional 1.5 percentage points of economic growth.

The Modi government?s Bill, sources said, also seeks to redefine the taxation powers of the Centre and states.

The UPA government had in 2011 introduced a Constitution Amendment Bill for GST in the 15th Lok Sabha but it lapsed with the dissolution of that House. This Bill had sought to keep petroleum products and entry taxes outside the GST ambit. This practically would have necessitated another amendment to the Constitution whenever these items are to be brought within GST. The new arrangement would theoretically include petroleum products in GST, but would temporarily keep them out for practical purposes. These could then be subsumed into GST whenever needed, without having to amend the Constitution further, sources explained.

Entry taxes account for about 10% of states? revenues, while petroleum products account for roughly 30% of states? tax revenues.

Meanwhile, fresh uncertainty has surfaced on the issue of dispute resolution. The proposed GST Council or any other body of Union and state ministers would be breaching the constitutional separation of powers if tax dispute resolution power is vested in them. States have pointed out that an executive body of ministers cannot be an arbiter in tax disputes as taxation is the sole prerogative of the Parliament and state legislature that make law. ?Several rounds of discussions on this have been held and we hope to resolve this issue soon,? said a person privy to the talks.

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