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States on board for 1% manufacturing tax if compensated:Guj FM
States on board for 1% manufacturing tax if compensated:Guj FM

Finance Minister Arun Jaitley held a meeting with state finance ministers to discuss the pending Goods & Services Tax (GST) Bill. The FM said that some issues have been ironed out and that most of the state governments are on-board now. No state government has any objection over GST in today’s meeting, Saurabh Patel, Gujarat FM said. While many issues were discussed, no talks happened over the revenue neutral rate (RNR). Parminder Singh Dhindsa, FM of Punjab said that states are yet to decide on the suggested 18 percent rate. A more detailed study is needed to decide the revenue rate, he said. Another meeting is scheduled for July where RNR and dual control (which involves least interference from state or central government and smooth passing of GST) will be the main issues, Patel said. However, state secretaries are expected to meet by this month-end to discuss crucial issues for the July meet. Patel told CNBC-TV18 that state governments did not oppose to one percent manufacturing tax as Jaitley assured of compensation for this tax to states. The main question, he said, would be of what the compensation will be if manufacturing tax of one percent is retained in the Bill.
Amit Mitra, Finance Minister of West Bengal told CNN-News18 said each state that participated in the meeting on the Goods and Services Tax were on board. Each state has its own perspective and there will be a further meeting on GST in July, he said. There has been consensus among the states, which is a big step, he said.
Below is the transcript of Saurabh Patel, Parminder Singh Dhindsa and Amit mitra's interview. Latha: Can you give us your key takeaways from the meeting today?Patel: Actually the meeting was very cordial and most of the states agreed to everything which was discussed. All the decisions were unanimous.Latha: What were the decisions?Patel: They talked about 18 percent cap in the constitution and most of the states agreed that you can't have tax rate in the constitution because every time you can't go and change the constitution if there is any difference. So, any decision  regarding taxation matters, you can put it in the act or draft law, that is one way. So, unanimously everyone was clear on the subject.Latha: Was that true even of Congress ruled states because after all it is only Congress which is objecting?Patel: No one had objected today in any of the discussions. There was a broad agreement and that will be minuted also in the meeting. So, there is no question of any objections.Then was dual control - all the states were very clear that if you want to have a smooth transition then dual control should not be there. So, I think consensus will be formed somewhere between those lines that below a certain amount it will be only the states who will be looking after the dealers.Latha: Was that agreed that it will be Rs 1.5 crore , traders with revenue less than Rs 1.5 crore will be regulated by the states?Patel: It was discussed and most of the states have given their opinion for Rs 1.5 crore but we have decided we should go into more details. So, we are having a meeting again in July where two issues will be discussed, one is the dual control and the other will be revenue neutral rate (RNR). For these two issues the secretaries have been told to have discussions earlier, try to trash out certain issues, put their points across and then the ministers will sit and go through everything and come to a understanding.Latha: Today there was no discussion on the rate at all, on the revenue neutral rate?Patel: No. Everyone felt that RNR should be as per actuals. At least we should know what the RNR is. Latha: Was there unanimity on that 1 percent tax on manufacturing?Patel: Manufacturing the thing is very clear that it was the manufacturing states who were more interested. Finance Minister was very flexible, the states were also very flexible. States have said that as long as  we get the compensation for this, they have also given their opinion and I think it is flexible. The question is what would be the compensation if this 1 percent is not there?  Latha: What I wanted to ask you this one percent tax on manufacturing benefits your state and my state. Primarily we are the big manufacturing states. So, are the consuming states okay, because there was a lot of opposition and genuine opposition that this will be a cascading tax. Are you sure if this one percent remains it will not be a GST deal breaker?Patel: No, does it remain or not is not a point which was discussed today. The point is the issue was flagged off and when the issue was flagged off honourable Finance Minister said that if there are any changes in the whole thing the manufacturing states do not have to worry because when compensation of that revenues will be given out. So, naturally when the manufacturing states are protected as far as the revenues are concerned their objection naturally dies down.Latha: So, if your state and my state is compensated entirely for the loss of the one percent manufacturing tax then there will be no opposition and these states may not insist on that one percent. Is that how we should understand it?Patel: Yes, if you see the thing is today if you look at the total Central Sales Tax (CST) of all the states, I am not talking only of manufacturing states, of all the states that also includes mining activities, that also includes a lot of other activities. The total revenues of all the states comes to around Rs 75,000 crore. So, when this Rs 75,000 crore is subsumed naturally the revenues have to increase accordingly in GST. If the revenues don't increase in GST then compensation have to be paid by the centre. So, this one percent additional tax was just temporarily trying to reduce certain amounts on those Rs 75,000 crore. I hope you understand what I am sayingLatha: I get your point that if this one percent is not there to that extent the centre will have to compensate more?Patel: Yes, that is true.Latha: So, there is a purpose for which even the centre may want that one percent tax so that their initial compensation amount is less?Patel: That is the reason why we are sitting back to discuss RNR.Latha: So, the next meeting is in mid-August or will there be a July meeting where the RNR is discussed?Patel: The secretaries are going to meet very shortly, maybe by the end of this month or before that also and as far as the ministers we will be meeting in July mid.Latha: At the July meet the RNR discussions will happen?Patel: Yes RNR and dual control. These are the two most important issues now left. Because RNR will give you the revenues of the state, we will decide practically what the compensations would be like and to a certain extent what would be the income of services to the states. So, that is one, revenue side will be looked after.The dual control part is how smoothly GST can be implemented. So, if the lesser the involvement of the state and the centre, say, we will try to reduce the involvement as far as possible. It will be only one authority. Except for big ones or something like that. So, the lesser the interference the smoother the transit would be.Latha: Just an hour, probably, after the empowered group met the finance ministry on its website has released for public discussion the model GST bill. Is that the kind of bill all the states will adopt?Patel: After today's discussion we have decided to put it in public domain. Now, there are a lot of people who would be taking interest in this whole thing. Now, a lot of suggestions would come. So, if you take the stakeholders into confidence it is easier to implement. Another point is at the end of the day we might also learn something from the whole thing. We might have missed out on something, or we might have taken the opinion and it might change something.Latha: But today, in the meeting, did you all discuss the model bill or did you all only told that the model bill is ready and it will be released?Patel: No, we discussed with all the states. The whole today we hardly had any discussion from the constitutional amendment. Our 95 percent of the time went on to discuss this draft bill, which has been put in public domain.Latha: This is the bill that the states will adopt? There is a separate central GST which the centre has to pass?Patel: There will be three bills. Besides the constitution, one is with the SGST, one would be the IGST and third would be CGST. So, all three would be put under public domain, which would be separated, this is their initial draft. Afterward it will be properly separated and the state assemblies will have an approval of the SGST bill.Latha: So, today the model bill that has just now released on finance ministry website is the model for the SGST, for the States GST?Patel: Yes, SGST and there are also some issues regarding CGST also, who will look after what. So, it will be more clearer once it will be completely set.Latha: You got the impression that most of the states were onboard with the model SGST that was discussed or were there some violent differences?Patel: No, violence. In fact there were certain issues which were raised. This was about the dual control. Then the another was the settlement commission. Third one was IGST on exports. So, there are 8-10 issues. Whichever states thought should be of importance that state had put in their views.Latha: Were there any discussions on the dispute resolution mechanism? That has been a bone of contention.Patel: Nothing great on it.Latha: But what you think will be the eventual dispute resolution mechanism. It will be the governing council of the GST?Patel: Who is the person who is affected, that is the state government and the central government. So, the dispute mechanism should be met with these parties. So, this was not an issue which was discussed but this was the views of most of them.Latha: For the Congress that is a deal breaker but if the Congress states are onboard with the dispute resolution sitting with the states  then I guess the Congress's opposition can be overcome. What  did you get from the Congress ruled states, are they okay with the dispute resolution mechanism staying with the governing council?Patel: All the finance ministers were here, never once anyone thought within themselves that we were representing so and so party. Whatever views which were given by the states were genuine views which he was concerned for his state. It was not that just because it is a BJP ruled state or it is a Congress ruled state he gave views what his high command wanted. It were views which were genuinely given by the state as per his thoughts are concerned.Latha: What is the state of preparedness of the information technology system, the IT backbone and what is the state of preparedness of the services because you guys have to learn how to tax services, the centre has to learn how to tax sales tax. So, that administrative learning or shift of personnel, will that all be ready on April 2017?Patel: That was also discussed. In fact that was separately on the agenda and after lunch this was one of the important topics which we had. The hardware, the software, everything is falling in place, states are also preparing for the backend thing and one state might be ahead than the other state but other states are understanding the seriousness of this issue.Latha: So, April 2017 is a reality?Patel: That the centre has to decide along with other states. Once the constitutional amendment passes through in the monsoon session, then 50 percent of the states have to ratify, then the act has to be passed by the centre as well as all the states. Then the rules are to be formed and all these things you have to do it by taking people into confidence.Latha: As someone who has seen the political setup from close quarters, what is your sense, despite the Congress's opposition , the Congress doesn't have the numbers in the Rajya Sabha. So, can we conclude that the passage of the amendment  bill in the monsoon session is a reality there are no two ways about it?Patel: Today if you look at all the finance ministers, the will was there. Now how this will would be converted into actual voting that is a political decision. If you look at today as a whole consensus was built-up on practically everything. All the states were saying lot of time has passed, we have put in lot of efforts in lot of years, it is time that we should go and do it. I think the speed with which the future agendas have been decided by the empowered committee, I am sure everything will fall in place in due course.Sapna: Are you okay with this 18 percent RNR that the panel has suggested?Dhindsa: No state is agreeable on fixing the limit of the tax at 18 percent because in future there may be situations where the states or the centre may have to increase the rate of tax. So, for that you shouldn't have to go for constitutional amendment.Sapna: The panel has clearly recommended an RNR of 18 percent, are you okay with this rate as of now?Dhindsa: RNR as of now there is no concrete evidence that the RNR is 18 percent. That will ultimately depend on so many factors. Different studies are calculating RNR at different rates, so that is why we want a detailed study into it so that each and every issue is addressed, all the states are onboard and that RNR rate should be the final rate so that no revenue losses are there.Luthra: Can you give us your key takeaways from the meeting today?Mitra: This is certainly a very welcome thing that Kolkata has welcomed 23 finance ministers, normally 10 to 15 at most attend, so that way the participation, the enthusiasm in the meeting was very high. A total of 100 officials included attended today’s meeting. I think in the meeting what the Union Finance Minister has said in a press conference later, there was an absolute clear consensus in principle on the GST.Though it is a closed door meeting I can generally say that there was a wide consensus. Now that only two issues since Union Finance Minister has said it on TV, I can say it to you there were two issues on which there were concerns. Concern one was that question of dual control which mean control by Centre and States, now here the meeting took a decision that only above Rs 1.5 crore of turnover will such dual control come into action, which means that small and medium and microenterprises will be relieved of any GST up to Rs 1.5 crore. This consensus accepted by the Union Finance Minister was certainly a big step in the right direction for small businesses, small entrepreneurs they will be out of the GST control they will only be controlled by the states as it is today. I think this is a very big development.Luthra: Which are the states which had a problem?Mitra: No, there were no problem states, absolutely none, to be amazing that each state gave its own perspective. I must tell you the dual control issue of above Rs 1.5 crore will involve meeting once more in July as to how seamlessly this process can happen in the dual control mode this was one.The second was revenue neutral rate of GST it is called R&R. The general suggestion made was that there are two widely varying estimates of what is the revenue neutral rate one was given by the adviser to the finance minister, another by National Institute of Public Finance and Policy (NIPFP) one was 17 percent. The other was over 26 percent. Once again all ministers agreed that within the second week of July the officials will prepare and these two alternative views will come and make a presentation to the empowered committee, so that empowered committee has a better idea of what’s the optimal revenue neutral rate. These were the only two issues on which by second week of July we will meet and there will be greater clarity through research. I would say I saw a universal support for the GST. Every finance minister spoke 23 of them and they expressed their perspectives and therefore it is a very cohesive meeting and Union Finance Minister came in after our discussions and spent about an hour and a half. We interacted with finance minister. Let you know that Mamata Banerjee 10 days ago had already lent supportLuthra: You seem very optimistic will we see it being passed in the monsoon session?Mitra: Well, I would not call myself optimistic. I would say I am realistic.Luthra: Will the GST bill be a done deal in this monsoon session?Mitra: Well, this is not for me to say. It is not for me to say as chairman of the empowered committee of finance ministers. I can only tell you that there were great unanimity. The minor issues or some issues which require more study I have already indicated to you what they are and once that is done, then of course it will move forward. Please understand GST is not like magic that you bring rabbit out of a hat. It has step by step by step it progresses and today’s meeting was a big step forward towards a wider consensus and only some issues which needed greater understanding, only two issues and I did not hear a single dissenting voice from any states and there were finance ministers from all parts of country for all political parties.

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