The bustle in government is evident with deputy chairperson of Planning Commission Montek Singh Ahluwalia having a quick word with Modi, who heads the empowered committee of state finance ministers on GST, to explore measures that can get the proposal moving.
Modi is understood to have pointed out that a constitution amendment bill essential to facilitating the GST rollout has been in Parliament since March 2011 and is now under consideration of the standing committee on finance. Passage of the bill in the monsoon session will be a significant step forward. The Bihar leader also suggested that a clause in the proposed GST council that would give state finance ministers a say in the compensation formula for loss of revenue due to reduced central sales tax will go a long way in reassuring the states that their interests will be protected.
Ahluwalia expressed keenness to move on GST and assured that the empowered committee’s views will be conveyed to the PM soon, indicating that the government may be ready to reach out to BJP on the long-pending major tax reform. States are awaiting details of the CST compensation former finance minister Pranab Mukherjee signed off on his last day at work before he quit to file his nomination for the presidential election. The Centre and states are locked in a dispute over the quantum of compensation. No compensation has been given to the states after 2009-10.
States not only have their pending demands but are also worried that compensation amounts could be reduced or stopped in future, leaving them to foot a loss of revenue. Finance ministry statements that states cannot be “endlessly compensated” and assertions that no further transfers are possible till GST is rolled out have only made states more suspicious. Modi recently told finance standing committee that the Centre needs to work hard to wipe out trust deficit and take the states on board. He reminded the committee that reform aimed at phasing out taxes like octroi and CST and integrating the states’ economies needed the approval of 50% of state assemblies.