By TIOL News Service

NEW DELHI, DEC 11, 2014: FOR the Union Government's plan to table Constitution Amendment Bill on the GST in the present session of Lok Sabha, today's meeting of the Empowered Committee was indeed critical. But what has finally turned out to be not less than a disaster for the proposed indirect tax reform agenda of the Modi Government. The State Finance Ministers seem to have learnt the art of not budging from their stands taken in the month of July in the name of cooperative federalism.

After the conclusion of the meeting, the J&K Finance Minister and the Chairman of the Empowered Committee briefed the media persons that out of several demands made by the States in their July meeting and reiterated at latter meetings, the Union Government has accepted their plea for crediting the collections of IGST (a substitute for CST) in the divisible pool of revenue and the same is to be devolved to the States as per the formula recommended by the Finance Commission.

Since the North Block has not accepted the other demands of the States, the EC today once again resolved that unless their demands are met they would not like to support the Constitution Amendment Bill (No 122 now) on GST.

What are their key demands -

1) once the GST is implemented, some States have the fear that they may lose their revenue. In that scenario, the Centre should provide compensation for the GST losses for Five Years in place of three years as agreed upon by the Centre;

2) For such a GST compensation package, States are looking for a legal provision within the Constitution Amendment Bill so that there is no room for the North Block to go back on their promises for various possible reasons.

3) For the purpose of GST compensation the States have demanded that there should be a third party independent mechanism to disburse the sums to the States.

4) With respect to the petroleum products the EC has decided that all petro products should be kept out of GST ambit. The key reason is that most States garner about 50% of VAT revenue from petro products.

5) On the issue of Entry Tax, there is no change in their stand as most States have taken a stand that entry tax must not be subsumed by the GST.

6) On the issue of CST compensation, the States have demanded higher compensation on the basis of detailed economics. As per the EC Chairman, the Centre has agreed to provide a package of Rs 11000 Crore to compensate for the losses upto the FY 2010-11. For other financial years the EC team was scheduled to meet the Union Finance Minister and discuss about the package for other years.