States happy with outcome of GST Councils first meeting

Left-ruled Kerala on Friday sought a decision on the formula for compensating states for any loss of revenue post goods and services tax (GST) before a rate is decided even as most others hailed the decisions taken at the first Centre-State council meeting on the new tax regime.

At the first meeting of the GST Council, states proposed certain formulae based on their revenues for calculating compensation while the Centre proposed compensating states if the revenue growth rate falls below 12%.

"The Centre had suggested an average of last three years of revenue, some states said it should be best of three years out of five. Then the Centre went back and suggested that it should be based on pan-India revenue growth rate of 12%. Almost all states are in agreement that it has to be the best of three years out of five," Kerala Finance Minister Thomas Isaac said.

The compensation needs to be thrashed out before deciding the rate, he said.

Gujarat Minister of State for Finance Rohit Patel proposed the formula of the best three of the last 10 years for calculating compensation to states while West Bengal put it at the best three of the last six years.

Chhattisgarh Finance Minister Amar Agrawal said all states were on board for GST implementation by April 1, 2017.

The states and the Centre on Friday agreed to Rs 20 lakh as the turnover limit for exemption from GST, with states saying their share of revenue would be protected.

"Delhi wanted that the exemption threshold should be kept at Rs 25 lakh, but the Council decided on Rs 20 lakh. Our revenues will be protected," Delhi Deputy Chief Minister Manish Sisodia said.

Uttar Pradesh Minister of State for Skill Development Abhishek Mishra said the state is happy with the Rs 20 lakh figure and it would be hassle free for traders.

Haryana Finance Minister Captain Abhimanyu too said there will be no loss of revenue to the state.

"We would like to be fully compensated and the Centre has given that assurance. Now, only the broad modalities are to be decided," he said.

Odisha Finance Minister Pradeep Kumar Amat said the central government will compensate for five years for revenue loss and this will be discussed in the next meeting.

According to West Bengal Finance Minister Amit Mitra, three alternatives were discussed.

A state can be compensated if the revenue under GST falls short of the average tax earnings in the best three years out of the past five.

Second, of the five years, two outliers are left out and an average is taken. If the revenue under GST is short of this, then states get compensated.

Third, a base year can be fixed and a particular growth rate decided for all states. If the revenue falls short of that, then compensation kicks in.

The base year for compensation has been agreed as 2015-16 and the average of five years will be taken, he said, adding that if for some reasons the base year becomes 2016-17, then the average would be taken for six years.

The GST Council, chaired by Union Finance Minister, will meet again on September 30 and discuss the compensation issue. In the October 17 to 19 meeting, the Council will decide on the rates. The officials of both the Centre and states are working on thrashing out a consensus on the compensation formula.