The proposed goods and services tax (GST) faced fresh challenges yesterday, as states demanded complete control over small traders for the state component in the tax regime and also stuck to their earlier demand of keeping alcohol among other things like the entry tax and petroleum removed from the GST purview, thus keeping the authority of levying the excise duty and the sales tax in their own hands. They also want a provision in the Constitution Amendment Bill to compensate states for revenue loss after the new indirect tax system came into force, according to a report in the Business Standard today.
Taxes on alcohol and petroleum are the cash cow for most State governments and form a substantial chunk of the tax revenues. Although the Indian Constitution gave them the power to formulate their own local sales and taxes policy on alcohol in order to curtail the use and encourage Prohibition, they often use them as Sin Tax and increase them whenever the State coffers deplete beyond a certain level, outwardly reducing the demand and consumption but knowing fully well that these products are not too price sensitive.
As expected, the Bharatiya Janata Party (BJP) -ruled Madhya Pradesh and Gujarat, which had earlier derailed introduction of the indirect taxation regime, appear to have softened their stance whereas, Congress-ruled Haryana has toughened its stance. Tamil Nadu has reiterated its concern over the impact on the fiscal autonomy of the State under GST.
The unity among states on some of the contentious issues discussed in the meeting yesterday might force the Centre to relent on some issues to an extent. Officials said this might not be an ideal GST but would still be better to begin with. However, there is no evidence of their coming together on including alcohol as a part of the proposed GST regime.
Under the scenario with wine and other alcohols excluded, it would raise the question once again on what happens to the excise duties and VAT once the ongoing FTA is finalized with the European Union when the suspended negotiations are restarted. The custom duty on imported wine from EU is expected to come down from the current 150% to 20-40%, on the premium wines. But the reduction could be wiped out with the stroke of a pen when a State decides to raise the excise duty in the garb of some excuse which is beyond the purview of the legal system.
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Tags: Goods and Service Tax (GST)