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Chandigarh, Haryana’s new BJP Government has urged the Central Government to promptly resolve the long pending issue of CST compensation and has suggested that from the year 2014-15 onwards either the States may be compensated fully till the GST is actually rolled out or the CST rate be increased to four per cent.
This was stated by Haryana Finance Minister, Capt. Abhimanyu in the meeting of the Empowered Committee of State Finance Ministers in New Delhi today. It was presided over by Chairman of the Empowered Committee Mr. A.R Rather and attended by Ministers from various States and officers of the Government of India, State Governments and Empowered Committee.
Mr Abhimanyu said that bitter experience of CST Compensation has created a trust deficit among the Centre and the States. Therefore, Haryana proposes that the GST Council under the proposed article 279-A must be given a specific mandate to deliberate upon the losses in the State revenue post-GST and it should be mandated to devise ways to fully compensate for these losses.
He reminded that the States and the Empowered Committee of State Finance Ministers had earlier taken a consensus decision that settling of CST compensation is essential for creating an environment conducive for further discussion on GST. Many of the States including Haryana had raised this issue in the meeting between Union Finance Minister and Empowered Committee of State Finance Ministers held on July 3, 2014 at New Delhi. In this meeting Union Finance Minister had assured the States that the compensation will be paid. However it is a matter of concern that no provision for payment of CST compensation to the States has been made in the Union Budget for the year 2014-15 presented in the Parliament, he added.
While raising certain issues, the Minister said that the first concern of some States has been regarding adequate protection of fiscal autonomy provided to the States under the Constitution. The second point of concern is the fall out of destination based IGST model of inter-State supply of goods and services on the exporting States. The third concern is regarding loss of revenue post GST which may not be compensated fully by the Central Government in view of the experience of CST compensation. As the latest draft constitutional amendment bill is one of the agenda items, he said, urged the Empowered Committee to once again discuss these issues.
While referring to the letter received from the Additional Secretary (Revenue) dated September 24, 2014 regarding the threshold in GST regime, he said that Haryana Government is of the view that there is no need to refer back the issue of threshold to the Committee on Dual Control, Threshold and Exemptions because this Committee has already recommended the threshold at Rs 20 lakh after due deliberations and consideration of the points raised by the Union Additional Secretary (Revenue. Hence, this issue may be reconsidered in this meeting and final decision regarding increase in threshold may be taken today itself.
However, while adding that it has been decided to keep the threshold at Rs 10 lakh in the meeting of the Empowered Committee held on August 20, 2014, he said , “Our State is of the view that threshold limit should be of Rs 20 lakh taking into account both the Supply of Goods and Services and zero threshold for the dealers who are conducting inter-State transactions”.
While referring to the issue of Report of the Committee on Revenue Neutral Rates (RNR) for State GST and Central GST and Place of Supply Rules in GST regime, he suggested that with a view to bring the RNR at reasonable level for the States like Haryana which have strong manufacturing base and high CST revenue, either certain percentage of IGST can be credited to the account of exporting States or certain percentage of IGST can be credited to the GST Compensation Fund which can be managed by the proposed GST council to address the revenue concerns of the States who incur huge loss due to implementation of GST.
He pointed out that the NIPFP has calculated RNR for Haryana as 12.04 per cent without entry tax as well as with entry tax in single rate structure. The RNR in standard rate is 17.45 per cent without entry tax and 17.44 per cent with entry tax has been calculated by the NIPFP. But according to our calculation the RNR for the State is 15.75 per cent without entry tax and 16.73 per cent with entry tax in single rate structure. The RNR in standard rate is 22.27 per cent without entry tax and 23.91 per cent with entry tax.
“The RNR in our calculation is higher than the calculations of NIPFP because in GST regime tax/purchase tax on food grains, projected figure of entry tax and reversal of ITC has not been considered by the NIPFP”, he added.
Referring to the issue of Place of Supply Rules in GST regime, he said that Haryana is in favour of the recommendation of the Committee regarding the Place of Supply Rules.
While deliberating on the issue of consideration of the report of the Committee on IGST and GST on import, the Minister said that the Committee has recommended that IGST Model is the model to be followed to tax inter-state transactions under destination based GST. Also, the committee has recommended specific norms for implementation for the IGST Model. The State generally agrees with the recommendations of the committee except the e-returns to be allowed only on payment of due tax as self assessed and declared in the returns.
He said that Haryana Government is of the view that the dealer should be allowed to file e-return though he does not pay full tax with the restriction that the purchaser would not be allowed to claim ITC on purchases in case the seller does not pay full tax or pays part payment of tax. Further such return would not be considered as valid return for settlement between the Centre and the States. The reason for allowing the seller to file return is that the authority could know his transactions and liability to pay tax.
However, he said, “Our State supports the view of the committee that a uniform practice of payment of tax in every month should be followed. There should not be any exception with respect to payment of tax”.
The report suggests that in case of capital goods, claim of Input Tax Credit should be spread over several tax periods. But this will be administratively complicated and also make the return form complicated. It will also be difficult on the part of administration to track the spread over claim of Input Tax Credit. Hence it is suggested Input Tax Credit on capital goods should be allowed at one go in the tax period itself for which the dealer files the return.
At present a big proportion ranging between 20 and 25 per cent of total sales tax revenue of Haryana comes from the CST proceeds on the inter-state sales. In the IGST model being discussed by the committee tax on supplies of goods and services from the exporting States like Haryana would finally flow to the actual consuming State thereby leaving no tax revenue to it. This would seriously disincentivize a net producing State like Haryana which has provided excellent physical and social Infrastructure for Manufacturing, Services and Agricultural Sectors to flourish in the State.
The Minister pointed out serious apprehension among the States on the possibility of suffering revenue losses after the implementation of GST. Huge revenue loss due to abolition of CST would result into higher RNR and dependency of the net-exporting States for GST Compensation from the Centre.
