Finance Minister on the GST Council

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GST Council not to Disturb or Alter Primacy of
Legislature in the area of Taxation: FM

Finance Minister’s Address at meeting with Empowered Committee of State Finance Ministers

18th August 2010

The Union Finance Minister Shri Pranab Mukherjee had a meeting with the Empowered Committee of State Finance Ministers to finalize the draft Constitutional Amendments on Goods and Services Tax, here today. Addressing the meeting, the Finance Minister emphasized that the primacy of the Legislature in the area of taxation is supreme and inalienable and that the proposed draft on GST did not seek to disturb or alter this in any manner. Highlighting the importance of the GST Council, Shri Mukherjee said that the collective wisdom of the Council would be a valuable resource in benchmarking rates, exemptions, thresholds and other key parameters for both the Centre and the States. Even if its decisions are not binding, they would be useful as guiding principles which could be ignored or violated only in very grave or exceptional circumstances. Regarding States’ concerns about the subsumation of taxes such as entry tax and entertainment tax levied and collected by local bodies, the Finance Minister assured that the Joint Working Group set up to draft the Constitutional Amendments will take care of these issues while preparing the third revised draft.

Following is the text of Finance Minister’s speech delivered at the meeting:

“Let me begin by extending a warm welcome to all of you to this meeting convened to give a shape and form to the Goods and Services Tax. Although the list of things required to be done for the introduction of GST is long, the priority for now is the finalization of draft Constitutional amendments so that the Amendment Bill may be introduced in Parliament during the ongoing monsoon session. This is critical for meeting the April 2011 deadline.

During our last meeting on the 21st of July, 2010 I had shared with you the first draft of the Constitutional Amendment required for the introduction of GST which was prepared by the officials based on discussions in the Joint Working Group. I have been informed that the Empowered Committee held intense discussions on this draft in its meeting on the 4th of August, 2010. Similarly, the second revised draft has been discussed at length in the meeting of the Empowered Committee held this morning. My team has apprised me of the views expressed by the States in these meetings. I am aware, therefore, of the apprehensions that most of you have voiced regarding the proposed amendments.

Based on feedback I received, it seems that your deepest concern has been the perceived sacrifice of fiscal autonomy owing to two provisions in this draft – one, the role of the GST Council and two, the so-called ‘veto’ power assigned to the Union Finance Minister as the Chairperson of the Council. The concerns about the role of the GST Council stem from the fact that it was called upon to “determine” the rates of tax, exemptions and threshold limits etc. and its decisions were to be “binding” on both Governments. It was the perception of some of you that the proposal has the effect of granting primacy to the Council over the Legislature. I would like to emphasize that in a Parliamentary democracy such as ours this can never be the case. Article 265 of the Constitution clearly states that “no tax can be levied or collected except by authority of law.” Thus, the primacy of the Legislature in the area of taxation is supreme and inalienable and the proposed draft did not seek to disturb or alter this in any manner.

As for the sharing of power between the Centre and the States in the functioning of the GST Council, it has been our primary concern not to lose sight of the fact that Indian economy still suffers from acute regional imbalances where the revenue-raising potential of all the States are not similar. It was perhaps in recognition of this fact that our Constitution makers...
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