Will Gujarat cripple Modi's GST bid?

Moneycontrol Bureau

After opposing the a central goods and sales tax (GST) for years as Gujarat chief minister, and later becoming its chief patron, prime minister Narendra Modi may face opposition for the ambitious tax reform from the same state he ruled for 12 years.According to a report in the Financial Express, the Gujarat government has asked the right to collect central sales tax in perpetuity, a move that may hijack an expected smooth rollout of the national tax.Aimed to subsuming most state-level taxes and levies, the GST was proposed by the erstwhile UPA government in 2007 with a target to be launched by 2010, but stiff opposition by BJP-ruled states, notably Gujarat, on the issue of loss of compensation from states, ensured it never saw light of the day.After storming to power, the BJP government at the Centre expressed support for the GST, which according to some experts, will reduce taxes at the broad level even as it would improve tax collection by encourage greater compliances. Industrialist Adi Godrej, who has termed the GST as the greatest reform since 1991 economic liberalization, believes it could 1-2 percent to India’s GDP growth.But even as it appeared that the BJP’s decision to adopt the GST would make it easier for the tax reform go through (given the previous opposition from BJP ruled states), the FE report says the Gujarat government has told the Centre that it should be allowed to deduct the 2 per cent tax levied on all goods that leave state borders to be sold elsewhere.Also, while it politically looks nearly-impossible that the Gujarat state government (on which Modi had a stranglehold till months ago – and where his influence will still be felt) will want to or be able to stall progress on GST if Modi is in favour of the tax, trouble may also be brewing from other states such as Jayalalitha’s Tamil Nadu, which has reportedly expressed its reservations over the tax’s implementation.Several states had earlier complained that they were yet to be compensation by the cut in the CST, which the central government levies but is collected by states, after it was reduced following the value added tax in 2005.According to reports, Finance Minister Arun Jaitley had agreed to pay dues of up to Rs 34,000 crore towards CST compensation over the next three years.During the recent budget, Jaitley had said that he would be “more than fair” in dealing with states, but it appears that like with the UPA, some states have set their minds to extract the most before letting the GST be implemented.“There are still some grounds to cover like the Constitutional Amendment Bill. States have some genuine concerns on autonomy and compensation,” KPMG’s Pratik Jain told the Business Standard. “In my view, GST is not a possibility in 2015 but it might come from April 2016.”