On June 14, 2016, the Chief Minister of Tamil Nadu, Jayalalithaa, presented a 29-point memorandum of requests highlighting the State’s demands on issues that touched upon financial allocations for Tamil Nadu and Union-State relations in India. The full text of the Memorandum, which includes the position of the State on issue relating to Water Resources, Fisheries, Power, Agriculture, Goods and Services Tax, Public Distribution System, Modernisation of Police Force, transport, rural development, textiles, health among others, can be accessed here. On the issue of a nation-wide Goods and Services Tax (GST), the memorandum said:
“Tamil Nadu is concerned about the impact the proposed GST will have on the fiscal autonomy of States and the huge permanent revenue loss it is likely to cause to a manufacturing and net exporting State like Tamil Nadu.
We are happy that some of the concerns raised by us have been addressed - the provision for Declared goods, which is against the principle of harmonization has been removed; alcoholic liquor meant for human consumption has been kept outside the purview of GST; and the provisions relating to Advisory Committees for dispute resolution have been dropped.
However, a number of concerns of Tamil Nadu still need to be addressed including:
GST Council as a constitutional body impinges on the legislative sovereignty of both the Parliament and the State Legislatures and completely jeopardizes the autonomy of the States in fiscal matters.
We strongly object to the provision for the GST Council. The existing mechanism of the Empowered Committee of State Ministers which dealt with VAT issues is adequate. Ideally, no statutory GST Council is required.
• Furthermore, the decision making rule and voting weightage in the proposed Council are unacceptable. They give the Government of India an effective veto in the GST Council and no distinction is sought to be made amongst the States in weightage. Hence, if at all a Council is formed, the weightage of the vote of the Central Government should be reduced to one-fourth of the total votes cast and that of the States correspondingly increased to three-fourths.
Further, the weightage of each State’s vote should be in proportion to the representation of the State in the Council of States (Rajya Sabha). This is important as the changeover to GST has different implications for different States based on their size and reliance on own tax revenues.
• Petroleum and Petroleum Products must be kept outside GST permanently in view of the revenue impact and the positive environmental and social impact of high effective taxation on these items.
• There is a need to enable the States to levy higher taxes on tobacco and tobacco products on par with the Centre, as States like Tamil Nadu already levy a higher rate of tax on tobacco and tobacco products on account of the public health concerns.
• It is quite clear that a manufacturing State like Tamil Nadu will permanently lose substantial revenue if GST is implemented, due to the shift of the levy from the point of origin to the point of destination and also due to the phasing out of Central Sales Tax and transfer of input tax credit on inter-State sales and inter-State stock transfers to the destination States. Due to the difficulty in fixing even nominally high revenue neutral rates, it is expected that the extent of revenue loss under GST would be around Rs. 9,270 crores for Tamil Nadu.
• Tamil Nadu reiterates the need for a constitutionally mandated independent compensation mechanism for full (100 per cent) compensation of revenue losses suffered by the States for a period of not less than five years.
• In lieu of the proposed additional levy of 1 per cent tax on inter-State supply of goods, Tamil Nadu suggests that the origin States may be allowed to retain 4 per cent of the Central GST part of the inter-State GST that would be leviable on inter-State supply of goods and services as this would ensure speedy recompense for a portion of the revenue loss and will reduce the amount of compensation payable. Further, as this comes out of the CGST component, it does not affect the destination State’s revenue or cause any cascading.
Hence, the stand of the Government of Tamil Nadu is that before the Constitutional Amendment Bill on GST is taken up, the Government of India should strive for a broad consensus on important issues like the compensation period and methodology, revenue neutral rates, floor rates with bands, commodities to be excluded from GST, the IGST model and clarity on dual administrative control, so that the genuine apprehensions of States regarding loss of fiscal autonomy and permanent revenue loss are allayed.”