These three issues stand between GST and its rollout

According to reports, Union finance minister Arun Jaitley is slated to conduct one final round of meeting with state finance ministers on December 11 where the draft GST bill will be shown to them and post consensus, it would likely be tabled in Parliament in the winter session before it ends on December 23.

At the meeting, the Union minister and his state counterparts will try to hammer out an agreement on three contentious issues that are reportedly yet to see common ground.

Here are those.

Inclusion of key items

The inclusion of two products, alcohol and petroleum products, and the subsumption of tax on entry of products into a state has been a bone of contention between states and the centre for several years now.

Petroleum and alcohol are two of the most lucrative sources of revenues for states and, according a report in the Business Standard, the centre has decided to tread the middle path by keeping alcohol out of its ambit while bringing in petroleum products.

The central government also got states to agree to abolish entry tax, something that experts had reckoned was necessary to create a truly national market, as entry taxes vary significantly among various states.

On the issue of entry tax, the BJP coming to power in Maharashtra has especially helped as the state was earlier leading the opposition to its abolishment, as the state was seen as the biggest loser (to the tune of Rs 16,000 crore) if it were to be subsumed.

Compensation from losses arising out of GST

Since the rollout of the VAT, during which the central government dilly-dallied on loss compensation of about Rs 34,000 crore (arising out of lowering of CST rate), states have been wary of a repeat experience with GST.

As a result, state FMs have insisted the centre include a provision in the Constitution to guarantee compensation towards losses, something that both the erstwhile UPA as well as the incumbent NDA government have been reluctant to.

To address this issue, the draft bill has proposed to create a GST council comprising of the union and state FMs, which will deal with such issues, according to a report in the Indian Express.

As the report points out, it helps that Prime Minister Narendra Modi has been a chief minister. “An assurance from him on compensating them for genuine revenue losses would certainly carry credibility.”

Decision on RNR

The decision on arriving at the revenue neutral rate (RNR) for GST, while an academic exercise, could turn out to be a fairly precipitous one.

The RNR allows for net tax revenues in the system to remain at the same level as they were in the earlier regime.

However, the maze of laws with respect to taxes, the difference in treatments and rates of various taxes between states, and depending on whether what products and taxes are brought under GST’s ambit, the government would embark upon the task of arriving at the RNR.

A sub-committee had proposed a total RNR of 27 percent for the dual-structure GST (13.91 percent for the central GST and 12.77 percent for state GST) but there have been issues with respect to lack of data coming from states.

Critics also dubbed the proposed rate as being extraordinarily high and said the government should push to bring more items such as land, liquor and petroleum to bring the headline rate down.