Govt waters down amendment for GST

In a last-ditch attempt to reach a consensus before the Budget session of Parliament, the Centre has sent the empowered committee of state finance ministers yet another draft constitutional amendment on the proposed goods & services tax.

The draft -- the third in the last seven months -- proposes the creation of a GST Council through an Act of Parliament, instead of presidential order, as proposed in the previous draft.

The empowered committee will convene in New Delhi on February 11 to discuss the revised draft.

Later in the day, its members will meet Union Finance Minister Pranab Mukherjee, who is expected to press for the introduction of GST without further delay.

The meeting assumes significance, as the finance ministry is keen to align tax proposals for Budget 2011-12 with GST.

Seeking to bring on board all the states -- several of whom have expressed concerns about loss of autonomy under proposals in earlier constitutional amendment drafts -- the Centre has dropped in the latest version any reference to the Union finance minister heading the GST Council.

"Details of the council will be provided separately in legislation that can be passed by Parliament at a later date. This would help the finance ministry convince states about GST at this stage and move ahead. Issues about the composition and functioning of the GST Council can be sorted out later," a person familiar with the developments told Business Standard.

In the first draft, the Centre had proposed giving the Union finance minister veto power in the GST Council and said its decisions would be binding on both the central and state governments.

After the states strongly opposed the proposals, the finance ministry came out with a somewhat watered down second draft, which stated that every decision of the Council would only be taken after members present at a meeting reached a consensus.

The constitutional amendment draft will also address concerns of some Union territories such as Delhi, who have sought specific mention of their powers in the Constitution.

Besides, the issue of central sales tax compensation to states also remains to be resolved.

After missing the original April 2010 deadline for GST rollout, the government proposed to introduce it in April 2011. But finance ministry officials have already said this date would also be missed.

Even though the Centre is working towards putting in place the information technology infrastructure for GST, there has not been much headway on discussions over the proposed constitutional amendments or GST structure since the last meeting of the empowered committee of state finance ministers on December 6, 2010.