GST rollout stuck on compensation issue: Sushil Modi

The introduction of the long-awaited goods and services tax (GST) is currently stuck on the states' demand that the centre compensate them for the loss of revenue on the switch to the new tax system, but it could be introduced in six months if the Centre agrees on the compensation issue, Sushil Kumar Modi, deputy chief minister of Bihar and head of the empowered group of state finance ministers on GST, said today.

''If the centre agrees to compensate the revenue losses incurred by states for a five-year period, then the GST can be rolled out within six months,'' Modi said at an interactive session organised by the Bharat Chamber of Commerce in Kolkata today.

Modi gave an 80-per cent chance for the GST bill getting passed in Parliament during the tenure of the present government. He said a broad consensus had been evolved on 80-per cent of the issues, but indicated that the polls due in 2014 may pose problems.

While things are moving in a positive way, Modi said, much will also depend on the prime minister and the finance minister. They will have to take the initiative on the compensation package, he added.

The empowered group, which will meet in Mussoorie on 10 and 11 May, is expected to work out the other crucial elements of the GST structure. This includes the revenue neutral rate and the minimum turnover threshold over which the new tax would apply.

The sub-committees with officials of centre and state governments as members have already sent their recommendations.

Modi said several issues relating to states can be resolved in the standing committee on finance, which incidentally is also headed by a BJP leader - former finance minister Yashwant Sinha.

The parliamentary panel will be able to resolve issues that are out of the purview of the empowered committee of state FMs, he added.

Finance minister Chidambaram has meanwhile, tried to win over hesitant states by providing a Rs9,000 crore compensation package through reductions in central sales tax.

The GST, which will remove layers of state taxes through a pass through mechanism, with the tax levied only on the final product, is a major demand of corporate India as it would lower the tax component embedded in the cost of a good.

It would also seamlessly integrate the economy by eliminating a plethora of taxes and checks across the country.