State finance ministers to elect new Chairman tomorrow; discuss model GST law

The Centre had last month circulated among states the draft of CGST, SGST and iGST for their comments.

State finance ministers will meet tomorrow to elect the new Chairman of the Empowered Committee and also discuss the model Goods and Services (GST) Tax law as well as report on the revenue neutral rate.

The Empowered Committee of State Finance Ministers has to elect the new Chairman as K M Mani has resigned from the post subsequent to stepping down as the Kerala Finance Minister.

The Centre had last month circulated among states the draft of CGST, SGST and iGST for their comments.

Besides, the report of the National Institute of Public Finance and Policy (NIPFP) on the revenue neutral rate (RNR) has also been circulated among the states.

“The panel will discuss the model laws and i-GST law. Also NIPFP report on RNR may come up for discussion,” a government official said.

The RNR is the one at which there will be no revenue loss to the states after GST implementation.

A sub-committee on GST had in November 2014 suggested that the RNR of GST be pegged at about 27%. The sub panel had suggested states GST at 13.91% and Central GST at 12.77%.

However, a recalculation of RNR was necessary as that RNR does not take into account the taxation of petroleum products as also the 1% additional tax which states can levy as part of the GST Constitution Amendment Bill.

While liquor has been completely kept out of the GST, petroleum products like petrol and diesel will be part of the new regime from a date to be decided at a future date by the GST Council, which will have two-third of its members from states.

The Rajya Sabha Select Committee has suggested that the Goods and Services Tax (GST) rate should not go beyond 20% as higher rates could fuel inflation and erode the confidence of consumers. Internationally, the GST rate ranges from 16-20%.

However, there are some exceptions like Japan, Australia and Germany, where the rates are 8%, 10% and 23%, respectively.

The GST Council will decide on the final GST rates and all decisions in the Council will require 75% votes.

Also, the states where goods originate can levy 1% additional tax over GST to make up for any revenue loss for the first two years.

As regards the model laws, the Central GST (CGST) will be framed based on the model GST law. Also, the states will draft their own State GST (SGST) based on the draft model law with minor variation incorporating state-based exemption.

Besides, iGST law would deal with inter-state movement of goods and services.

After the draft laws are deliberated upon by states, it would be put up in the public domain seeking comments of trade and industry.

Although the government had planned to roll out GST, which is touted as the most comprehensive indirect tax reform since Independence, from April 1, 2016, it looks difficult as the Constitution Amendment Bill is stuck in the Rajya Sabha where the ruling NDA does not have a majority.

With the Winter session of Parliament just a week away, the NDA has to work out a strategy to seek Congress support for passage of the law on GST, which is touted as the single biggest tax reform since independence.

Meanwhile, selection of a new Chairman of the Empowered Committee of State Finance Ministers tomorrow was necessary as the post fell vacant after Kerala Congress (M) leader and Finance Minister Mani resigned in the wake of the Kerala high court’s observation against him in the bar bribery case.


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