New Delhi 26.07.2016:Hon’ble Chairman of the Empowered Committee of the State Finance Ministers, Hon’ble Ministers of other States, senior officials of Government of India, Secretaries and Commissioners of Commercial Taxes of the States and friends.I would like to say that, Odisha is in favour of GST, which will reform the taxation system in the country. It will help in seamless movements of goods and services across the states and in growth of economy and industries. However, there are some issues for deliberations in the interest of the States.
- Constitution Amendment Bill for GST
- G.S.T: Presently, the state administers and collects tax under the CST Act, though the CST Act is a central Act passed by the Parliament. Power is given to the States to administer the tax. IGST will be passed by the Parliament and it will be administered by the Central Authorities. But IGST has the components of both CGST and SGST. Section 10 of the Draft IGST Act provides for apportionment of tax collected and settlement of funds between the State and the Centre. Since IGST has a component of SGST and in case of evasion/ non-payment of IGST, the State has to lose; the State authorities should be empowered to exercise powers to administer IGST with respect to the provisions like audit, assessment, demand and recovery of the tax. We endorse the views of the Empowered Committee that suitable provisions may be made in the Constitution Amendment Bill to enable the State Authorities to have power to administer IGST also. As suggested by the Chairman of the Empowered Committee, the following may be incorporated in Article 269A of the Constitution Amendment Bill:
“Parliament may by law authorize the State Governments to administer the Goods and Services Tax on supplies in the course of inter-State trade or commerce levied under clause”.
- Decision of the GST Council: In clause (8) of Article 279(A) of the Constitutional Amendment Bill, it is proposed that every decision of the GST Council shall be taken at a meeting by a majority of not less than 3/4th of the weighted votes of the members present and voting. The vote of the Central Government shall have a weightage of 1/3rd of the votes cast and the votes of all the states taken together shall have weightage of 2/3rd. Under the proposed amendment, if all the states vote in favour and the Central Government votes against, the views of all the states in the meeting shall be negated by the single vote of the Central Government as the states taken together cannot have 3/4th In this situation, the Central Government will have veto power. Hence, it is suggested that Central Government should have weightage of one fourth of the total votes cast and all the states should have weightage of three fourth of the votes cast and decision should be taken by three-fourth majority.
- Green Tax: Odisha is a mineral rich state and a major share of minerals are either sold for consumption in other states or used in production of goods which are sold to other States. Under GST the destination principle applies and the mineral producing State where pollution may be localized does not get any part of the revenue. It is only the consuming State that gets the tax revenue whereas the pollution is suffered by the citizens of the producing State. Therefore, taking into consideration the adverse environmental impact, we propose for the levy of an additional non-rebatablecess under GST which the State may be empowered to levy subject to suitable framing of guidelines after consultation in the proposed GST council. There should be a new entry in the Seventh Schedule to the Constitution, State List as 54B “Other Polluting goods and services to be notified by G.S.T council”.
- Tax on Tobacco and Tobacco products: In the draft Constitution Amendment Bill, Central Government’s power to tax on tobacco and tobacco products over and above the GST is retained, whereas, State Governments are not given power to tax on tobacco and tobacco products. Tobacco and Tobacco products besides being good sources of revenue for the States are “sin goods” and its consumption are discouraged. We urge that “Tobacco and Tobacco products” should be included in Entry 54 of the State List so as to enable the States to levy tax on it in addition to GST.
- Revenue Neutral Rates (RNR)
The RNR determined by NIPFP and the Committee headed by the Chief Economic Adviser widely differs.
The NIPFP has determined RNR for the State at 14.13 per cent and for the Centre 10.42 per cent on assumption of without one per cent additional levy on inter-state supplies and on assumption of with one per cent additional levy on inter-state transactions, RNR for the State at 13.23 per cent and for the Centre 10.42 per cent.
The RNR has been determined on the basis of many assumptions. The Committee headed by the Chief Economic Adviser has not given the State wise RNR. The NIPFP has given state wise RNR and has determined the RNR for Odisha 16% on the assumption of without 1% additional levy on inter-state transactions and 14.48% on assumption of with 1% levy on inter-state transactions. Hence, when the state average RNR without 1% levy is 14.1%, the RNR for Odisha is 15.8%. Similarly, when the State average RNR with 1% levy on inter-state supplies is 13.2%, the RNR for Odisha with 1% levy is 14.7%.
However, the RNR estimate is based on many assumptions and some factors relating to Odisha has not been taken into account. Those are as follows:
- In Odisha, paddy, rice, pulses, gur/jaggery, atta, maida and suji are taxable, whereas these commodities are tax free in most of the States.
- Input tax credit, in case of inter-state sale in Odisha is allowed to the extent CST is payable whereas in most of the State’s full input tax Credit in case of inter-state sales is available.
- Accurate and direct data of state wise Service Tax Revenue is not available and is estimated based on assumptions and therefore lacks precision.
Thus, the estimates are based on a number of assumptions and there is wide variation. Taking into account the factors mentioned above, the RNR for Odisha may be higher than what is estimated by NIPFP. If the RNR decided by the Empowered Committee is lower than the State RNR, the State will incur loss on introduction of GST.
- CST Compensation:
The Government of Odisha have claimed Rs.2755.36 crore towards CST Compensation for the loss on account of CST reduction from 2007-08 to 2011-12 but received Rs. 2201.40 crore for the said period.
The CST Compensation claims for release by GoI for the year 2012-13 to 2014-15 is noted below. (Rs. in Crore)
|Year||CST Loss Claim of State||Compensation sanctioned by Govt. of India|
Non-release of compensation on account of loss towards CST reduction has caused trust deficit between Centre and State. In the meeting of Empowered Committee of State Finance Ministers held in Bhubaneswar on 28th and 29th January 2013, it was decided that for the period 2010-11, 100% of the claim of compensation should be paid to the States, for the period 2011-12, 75% of the claim would be paid and for the period 2012-13, 50% of the compensation claim would be paid to the States. It was also decided that in case GST would not be implemented from 1st April 2013, then the position will be further reviewed by the Centre and the States. The implementation of GST has already been delayed. Hence, I request this august body that the position should be reviewed for considering compensation to the States for reduction of CST from the year 2013-2014 onwards.I am grateful to the members here for giving me a patient hearing. Thank you all.