Maharashtra ninth state to give its nod to GST

With both the houses of state legislature unanimously ratifying the constitutional amendment bill that will enable the implementation of Goods and Services Tax (GST), Maharashtra has become the ninth state to give its nod to the new tax.

The resolution was passed unanimously in both houses of Legislature. The Opposition raised the issue of increase in taxes leading to inflation because of GST. It also said this would have a negative impact on the state’s financial health, which could get affected owing to the abolition of several taxes. Chief minister Devendra Fadnavis admitted there would be some rise in taxes initially, but insisted the situation would improve in a couple of years. Finance minister Sudhir Mungantiwar insisted the state won’t suffer financial losses thanks to a revenue-sharing mechanism with the Centre.
Allaying fears that the functioning of the Mumbai civic body will be badly affected owing to the abolition of its major source of revenue such as octroi duty, the state government also announced a separate law to ensure compensation towards the loss of revenue to the Brihanmumbai Municipal Corporation (BMC).
The ratification will pave the way for presidential assent to convert the empowered committee into the GST Council comprising finance ministers from various states to draft the bills. Although the Congress and the Nationalist Congress Party (NCP) supported the move, during a day-long session held on Monday, Opposition leaders expressed their concern over the devolution of funds to the state, rise in prices of essential food items and a major loss to the BMC in the new regime. The Shiv Sena echoed the voice of the Opposition and expressed concerns with regards to the civic body in the city, but did not oppose the bill.
The state government assured the Legislature that by bringing an amendment in the law, it will ensure the BMC is compensated for revenue loss within a specified time frame. The BMC collects Rs7,000 crore of its revenue from octroi on goods. Mungantiwar said besides assured devolution to the BMC, the state will also press for time-bound devolution of taxes from the Centre so that the state’s finances are not crippled because of the delay in releasing the funds. He said that since the state GST is supposed to be deposited electronically and automatically, the fear of the state not getting its share in time was baseless.
“It would be baseless to claim that the Maharashtra government was agreeing to every condition laid down by the Centre. I can assure the state that the loss of a single penny will not be tolerated and we will assure that the state’s interest is safeguarded while implementing the GST,” Mungantiwar said. “It would be wrong to claim inflation in the GST regime will go up as 52% of goods in the Consumer Price Index list are the ones directly related to the poor; 28% goods are with mix use by various income groups of the society. This means the subsidies on the food grains and other items meant for the poor will continue.”
Chief minister Devendra Fadnavis, however, admitted the state may have to face a rise in inflation in the initial years of the GST regime, but stressed it will steeply recede later on. “It is true wherever GST was rolled out, inflation has gone up in the initial years. In Maharashtra too, in the first 2-3 years the same may be repeated, but after that price rise will start declining steeply,” Fadnavis, in his reply in Council, said.
He said the price rise will be a result of initial impact of the new tax regime followed by market corrections, but a single tax regime and eradication of cascading effect of multiple taxes will see a steep fall in inflation subsequently, he said.
Mungantiwar said the state has also been insisting on average revenue generation from taxes of the past five years to consider compensation towards the loss of the revenue. He said the past two years were of acute drought in the state, the state GDP was badly affected and hence the computation of the revenue in the past five years would benefit the state. The Centre has admitted to compensating an amount equivalent to the highest annual revenue, in the period stipulated, for the next five years. Although the rough estimates are of an annual loss of about Rs20,000 crore, Mungantiwar said it was difficult to arrive at a specific figure.
Congress legislators said GST was first introduced by the Congress-led NDA about 11 years ago and it was only because of the adamant approach of the BJP, that the passage of the GST was delayed. Former chief minister and Congress leader Prithviraj Chavan demanded a commission for the dispute resolution mechanism instead of powers having vested in the GST council. NCP leader Jayant Patil said in many international countries, GST had failed and their growth rate slowed down.
In the Council, Dhananjay Munde, leader of opposition, said the state should ensure there was no price rise in the new tax regime.