NEW DELHI 16/DEC/2014: The Centre and the states reached a broad consensus late Monday night on the contours of the goods & services tax (GST), the much-awaited indirect tax reform that was to be launched almost five years ago. Such a development would count as a breakthrough in bringing closer a critical reform measure that will help boost economic growth as it creates a common market, erasing tax barriers between states. The Modi government will try and move the constitutional amendment Bill to facilitate the levy in the ongoing winter session of Parliament to pave the way for rolling out the single tax from April 1, 2016. \"The deal is almost through,\" a senior finance ministry official said after the meeting of central and state finance ministers aimed at hammering out a broad concord. The official didn\'t reveal specifics as some details are still to be worked out. \"The discussions are moving in a positive direction,\" Jammu & Kashmir Finance Minister Abdul Rahim Rather, who is also the chairman of the empowered committee of state FMs, said after the meeting. Rather said it was up to the Centre to introduce the constitutional amendment Bill in Parliament.
Finance ministers of seven states, including Punjab, Haryana, Gujarat, Tamil Nadu, Maharashtra and Karnataka were present at the meeting, along with Rather. Though most states agree with the need to roll out GST, they have been opposed to what it entails, specifically worried about loss of revenue and fiscal autonomy. In particular, states want taxes on petroleum products and entry taxes to be kept out of GST as these are the biggest sources of revenue for them. This could be an area in which the Centre may yield as it\'s determined to push through the measure. A government official said the Centre is willing to be flexible to get states completely on board and a quid pro quo is under finalisation. Finance Minister Arun Jaitley, who held discussions with some state FMs on Monday, has repeatedly tried to address their concerns. As a trust-building measure, he has also promised to clear Rs 11,000 crore of central sales tax dues in the current fiscal.
States want to be doubly sure and want the compensation provision to be included in the constitutional amendment Bill, which will be examined by the law ministry. One of the options is allowing states to levy an additional 1% tax in lieu of subsuming the entry tax. The constitutional amendment needed to roll out the levy needs the approval of two-thirds of states, and hence the need to secure their backing. GST will replace the plethora of indirect taxes excise, sales tax, service tax, entry tax and other local levies with one single levy, helping create a national market for goods and delivery of services. State-specific levies and entry taxes lead to loss of revenue and cascading of taxes taxes on taxes. Some estimates suggest GST could add as much as two percentage points to GDP. The government feels the improving fiscal situation because of softer crude prices and decontrol of diesel has given it room to meet compensation demands. Earlier in the day, Minister of State for Finance Jayant Sinha had said the government expects to table the GST Bill in the current session. The levy was to have been originally put in place on April 1, 2010.