GST implementation: Finance Commission proposes Rs 50,000 Cr 'Grand Bargain' fund

to incentivise States
By T!" #e$s Service
#%& '%"(, F%B )5, )0*0: T(% *+ t, Finance Commission Report $,ic, $as ta-led
in t,e .arliament today -y t,e Finance /inister, /r .rana- /u0,er1ee, ,as
recommended t,e idea of a 'Grand Bargain' to implement t,e /odel GST2 t says any
GST model adopted must -e consistent $it, all t,e elements of t,e Grand Bargain2
To incentivise implementation of t,e Grand Bargain, t,e Commission recommends
sanction of a grant of Rs 50,000 crore2 T,e grant $ould -e used to meet t,e compensation
claims of State Governments for revenue losses on account of implementation of GST
-et$een )0*03** and )0*43*5, consistent $it, t,e Grand Bargain2 5nspent -alances in
t,is pool $ould -e distri-uted amongst all t,e states, as per t,e devolution formula, on *
6anuary )0*52
T,e %mpo$ered Committee of State Finance /inisters 7%C8 s,ould -e transformed into a
statutory council2 T,e compensation s,ould -e dis-ursed in 9uarterly instalments on t,e
-asis of t,e recommendations -y a t,ree3mem-er Compensation Committee comprising
of t,e Secretary, 'epartment of Revenue, Government of ndia: Secretary to t,e %C and
c,aired -y an eminent person $it, e;perience in pu-lic finance2
n t,e unli0ely event t,at a consensus $it, regard to implementing all t,e elements of t,e
Grand Bargain cannot -e ac,ieved and t,e GST mec,anism finally adopted is different
from t,e /odel GST suggested, t,is Commission recommends t,at t,is amount of Rs2
50,000 crore s,all not -e dis-ursed2
T,e states s,ould ta0e steps to reduce t,e transit time of cargo ve,icles crossing t,eir
-orders -y com-ining c,ec0posts $it, ad1oining states and adopting user3friendly options
li0e electronically issued passes for transit traffic2
!n t,e revenue3s,aring front, t,e Commission ,as suggested t,at t,e s,are of states in
net proceeds of s,area-le central ta;es s,all -e +) per cent in eac, of t,e financial years
from )0*03** to )0*43*52 5nder t,e <dditional 'uties of %;cise 7Goods of Special
mportance8 <ct, *=5>, all goods $ere e;empted from payment of duty from * /arc,
)00?2 Follo$ing t,is, t,e Centre ,ad ad1usted t,e -asic duties of e;cise on sugar and
to-acco products2 n vie$ of t,ese developments, t,e states@ s,are in t,e net proceeds of
s,area-le central ta;es s,all remain unc,anged at +) per cent, even in t,e event of states
levying sales ta; 7or Aalue <dded Ta; 7A<T88 on t,ese commodities2
n t,e event of notification of t,e BBt, <mendment to t,e Constitution and enactment of
any legislation follo$ing suc, notification, it s,ould -e ensured t,at t,e revenue accruing
to a state under t,e legislation s,ould not -e less t,an t,e s,are t,at $ould accrue to it,
,ad t,e entire service ta; -een part of t,e s,area-le pool of central ta;es2
T,e Central Government s,ould revie$ t,e levy of cesses and surc,arges $it, a vie$ to
reducing t,eir s,are in its gross ta; revenue2
T,e indicative ceiling on overall transfers to states on t,e revenue account may -e set at
+=25 per cent of gross revenue receipts of t,e Centre2


F/ fails to s,o$ undiluted commitment to GST implementationC
F%BR5<RD )B, )0*0
By 6ogendra Sing,
7Former C,airman, Customs E Central %;cise Settlement Commission8
F one goes -y t,e tenor of ,is speec,, /r .rana- /u0,er1ee, Finance /inister, ,as
presented 5nion Budget )0*03** on t,e cusp of e--ing tide of economic slo$do$n and
surging ,ope t,at ndian economy is once again entering a ,ig, G'. gro$t, tra1ectory2
But t,is rising ,ope cannot and s,ould not discount t,e c,allenges a,ead some of $,ic,
,ave -een outlined -y t,e F/ also in ,is -udget speec,2 First and immediate c,allenge is
to sustain and en,ance recently $itnessed recovery of gro$t,2 Furt,er, t,ere is need to
focus on t,ose sectors of economy $,ere t,ere ,as -een minimal or no positive gro$t, in
recent times2 <gricultural sector is an e;ample2 Second c,allenge is to ma0e t,is gro$t,
more inclusive and t,ere-y ensuring t,at $e ,ave a population t,at is ,ealt,y, educated
and truly empo$ered2 Food insecurity $it, current ,ig, Ffood inflation' is a serious t,reat
to fragile state of tran9uility in society $,ic, is already under great stress in na;alite
affected areas2 <nd even t,oug, t,e Finance /inister ,as said t,at no$ role of
Government as an ena-ler is coming into s,arper focus, Government $ould need very
,uge resources to ensure t,at re9uired infrastructure is in place and Government's
delivery system improves2 Best $ay of loo0ing at t,e 5nion Budget $ould -e to e;amine
and see ,o$ t,e -udget proposals ,elp t,e nation meet t,ese ma1or c,allenges2
Coming to t,e fiscal consolidation, Finance /inister ,as promised t,at Government
$ould target clear reduction it its domestic pu-lic de-t 3 G'. ratio and -ring out $it,in
si; mont,s a roadmap to s,o$ ,o$ it $ill -e done2 So at t,is stage, it is 1ust a promise2 n
t,e area of ta; reforms, Finance /inister ,as committed to implement 'irect Ta; Code
$it, effect from <pril )0**2 (o$ever, on Goods and Services Ta;, $,ic, among ot,er
t,ings is -illed to generate more revenue, Finance /inister ,as promised Gto endeavor to
introduce GSTH in <pril )0**2 #o firm commitment on t,e date of introduction of GST2
Government also intends to raise Rs )5000 crores from disinvestment of .S5s2 n case of
fertiliIer su-sidy, Government intends to move to$ards direct transfer of su-sidies to
farmers2 n t,e pricing system of petroleum products, t,ere is only an uncertain promise
t,at /inister of .etroleum $ould ta0e a decision on .ari0, Committee's
recommendations2 T,ere is also a promise to ma0e F' policy user friendly2 n t,e e;port
sector, su-vention of ) percent on t,e pre3s,ipment e;port credit ,as -een e;tended in
some sectors for one more year and t,ere is also a commitment to ensure continued
gro$t, of S%Js to attract investments and promote e;ports2
<gricultural sector is t,e most $orrisome area and no inclusive gro$t, is possi-le unless
it comes out of its current p,ase of sluggis,ness2 Budget promises a strategy covering
areas of agricultural production, reduction in $astages of produce, credit support of
farmers and t,rust to t,e food processing sector2 Some initiatives ,ave -een indicated in
t,e -udget speec, -ut $,at is most important in t,e conte;t of agriculture sector is an
efficient and corruption3free pu-lic delivery system $,ic,, per,aps, t,e 5nion Budget
$ould -e ,andicapped to ensure in t,e 0ind of federal set up $e ,ave in t,e country2
Fund allocations ,ave -een increased in t,e education and ,ealt, sector $,ic, is a
$elcome step2 Bot, t,ese areas cry not only for more funds -ut also for more
commitment and dedication on t,e part of ,uman resource t,at is t,e ma1or ve,icle of
delivery system2 <gain, 5nion Budget can only play an indirect role in t,e improvement
of t,e 9uality of t,e ,uman resource in t,ese t$o areas2
So far as ta; prospects are concerned, Finance /inister ,as provided relief -y -roadening
income ta; sla-s $,ic, $ould certainly -e $elcomed -y income ta; payers2 <llo$ing
deduction of Rs2 )02000 for investment in long term infrastructure -onds in addition to
t,e e;isting limits of Rs2 * la0, on ta; savings $ould promote savings and ,elp -uild
infrastructure2 Central Government employees $ould -e ,appy to -ecome entitled to
deduction of CG(S contri-utions at par $it, ,ealt, insurance sc,emes, particularly after
t,e rates of CG(S contri-ution ,ave -een su-stantially revised up$ards in )00=2 n t,e
area of corporate ta;, it is proposed to effect a +K increase in t,e rate of /<T on t,e
ground of inter3se e9uity among corporate ta; payers2 T,e limits of Rs2 40 la0,s and *0
la0,s fi;ed in *=B4 for -usinesses and professionals respectively to ,ave t,eir accounts
audited ,ave also -een raised to Rs2 ?0 la0,s and Rs2 *5 la0,s respectively $,ic, $ould
certainly reduce compliance costs for relatively small concernsL professionals2
/a1or c,ange on t,e indirect ta; side is across t,e -oard increase in Central %;cise duty
on all non3petroleum products from BK to *0K advalorem2 Similarly, t,ere is )K
increase in advalorem component of duty on large carsLmulti3utility ve,icles2 .ossi-ly,
t,e confidence t,at ndian economy is coming out of t,e slo$ do$n and need for more
resource ,ave com-ined to suggest to t,e F/ t,at no$ t,ere is need for partial roll -ac0
of fiscal stimulus pac0age2 Service ta; rate of *0K remains undistur-ed -ut a num-er of
ne$ services ,ave -een -roug,t under service ta; net2
Ta; proposals result in revenue loss of )?000 crores on 'irect Ta; side and gain of Rs2
4?500 crores on ndirect Ta; side2 5ltimately net revenue gain as pro1ected is )0500
crores2
T,roug, Finance <ct, )00>, Settlement Commissions -ot, on ndirect and 'irect ta;
sides $ere crippled2 Restoration of t,eir po$ers and 1urisdictions is a $elcome move -y
t,e present F/, more so $,en faster dispute resolution ,elps -ot, t,e assessee and
Government2 Furt,er, $,ile moving on to GST on t,e indirect ta; side, t,e carrying of
past -aggage of disputes s,ould -e -est avoided and Settlement Commission can
immensely ,elp in t,is endeavour2
Budgets ,ave a ,a-it of -eing differently -randed suc, as dream -udget, progressive
-udget, status 9uoistic -udget and so on2 T,e current economic slo$ do$n, even if ndian
economy is coming out of it, does not yet permit to dream2 So, per,aps, t,e F / t,oug,t
t,at it $as a time to -e realistic and consolidate t,e gains and not to ma0e paradigm s,ifts
in fiscal approac,2 But t,is ma0es it an ordinary -udget2 f all goes $ell, Fe-ruary )0**
s,ould -e a mont, for -old initiatives, of course, if t,e Finance /inister dares2