Finance Ministry proposes 3‑year compensation for states in GST

The Finance Min­istry has pro­posed to com­pen­sate states for three years for loss­es they may incur on account of switch­ing to a nation­wide Goods and Ser­vices Tax (GST) regime, as against a demand for a five-year com­pen­sa­tion of states. The states have demand­ed that such com­pen­sa­tions be pro­vid­ed by the Cen­tre for a peri­od of five years under the GST regime, for which the gov­ern­ment wants to intro­duce a bill in the cur­rent ses­sion of the Parliament.

The GST roll­out has missed sev­er­al dead­lines because of lack of con­sen­sus among states over cer­tain cru­cial issues on the new tax regime, which the present gov­ern­ment wants to roll out from April 1, 2016. There are dif­fer­ences between the Cen­tre and states on some issues with regard to the imple­men­ta­tion of GST that includes the rev­enue neu­tral rate and keep­ing petro­le­um, liquor out of the ambit.

While a sub-com­mit­tee on GST has sug­gest­ed that the rev­enue neu­tral rate of GST be pegged at about 27 per­cent, the states are yet to decide on it. It had sug­gest­ed states GST at 13.91 per­cent and Cen­tral GST at 12.77 percent.