States get in the way of merging 12%, 18% rates

PANAJI: States on Friday protested against the finance commission’s suggestion to merge the two standard rates of GST of 12% and 18% into one and also rework the mechanism for payment of compensation in future when the current system ends.
As part of the grant bargain at the time of introduction of GST two years ago, the Centre had promised to compensate states in case the revenue growth in a year was less than 14%.The compensation is to be paid during the first five years of GST but states are now demanding that this should be extended by another three years.
Fifteenth finance commission chairman N K Singh who met the GST Council members, comprising union and state finance ministers, suggested that the threshold for “revenue loss” be revamped once the “cliff is reached.” But state finance ministers, cutting across party lines, were not happy with the suggestion as they stand to lose revenue and will have to tighten administration to enhance collections. Singh is learnt to have pointed to the current situation, where 21 of the 29 states are eligible for compensation as revenue growth was under 14%.
Bihar deputy CM Sushil Modi is learnt to have pointed out that this was the situation only in the last few months. Pondicherry CM V Narayanasamy said that the proposal was unacceptable.
Even on the other suggestion to merge the rates of 12% and 18%, there was near unanimity that they should be left untouched as items in the lower bracket, which are politically more sensitive, will see a revision.
“It was the unfulfilled quest of late Arun Jaitley to discuss possible rate rationalisation immediately after the general elections,” a source in the Finance Commission said. The panel was of the view that there was a need to move to a three-rate structure — with the standard rate retained at 5% and a 28% levy on sin goods. The standard rate, it had estimated could be 16%, sources said.
The panel is of the view that the current system needs to be reviewed and Punjab FM Manpreet Badal and UP FM are learnt to have appreciated the constitutional body’s stand. “It has been a race to the bottom with every meeting only talking about a rate reduction. It is high time that we discussed rate rationalisation,” a source told TOI.
Assam finance minister Himanta Biswa Sarma, however, said that states are in favour of stability of rates and suggested that no significant changes in the structure should be expected till the Finance Commission submits its recommendations.