Tamil Nadu Chief Minister J Jayalalithaa has suggested to the central government to delegate the levy, collection and appropriation of tax substitutes for value added tax (VAT), central excise and service tax by the state.
She said the central government tax machinery can focus on inter-state taxation while calling for a consensus on key and contentious issues like dual rate bonds, taxation threshold and others and setting up of independent compensation mechanism.
In a letter to Prime Minister Narendra Modi on August 17, the text of which was released to the media here on Monday, Jayalalithaa said assesses of VAT were apprehensive that they would now be subjected to two sets of taxation authorities.
She said the problem could be overcome if a simpler structure of completely delegating the levy, collection and appropriation of the substitutes for VAT, central excise and service tax within a state to the state machinery is put in place, with the central machinery focusing on inter-state taxation.
“Not only would such an arrangement be administratively much simpler, but it would also ensure that the original Constitutional design of fiscal federalism of leaving the States in complete control of at least one sizeable source of revenue is preserved,” she said.
Stressing the point that manufacturing states like Tamil Nadu would stand to permanently lose substantial revenue if GST is implemented Jayalalithaa said there is no assurance of permanent compensation mechanism.
“Further, the state’s experience with the Centre’s compensation mechanism both for the introduction of VAT and the reduction of Central Sales Tax has been far from satisfactory and does not inspire confidence that a fair, hassle-free and workable compensation mechanism can be devised and implemented,” she said.
“Hence, I reiterate my earlier suggestion that the amendment bill should provide for an independent compensation mechanism in this regard,” Jayalalithaa said.