Price rise: FM for tax reforms, collective action

Finance Minister Pranab Mukherjee Wednesday sought “collective initiative” of the central and state governments and speedy implementation of the Goods and Services Tax (GST) to control price volatility in the domestic market.

Last Updated: Aug 04, 2010, 23:47 PM IST

Zeebiz Bureau

New Delhi: Finance Minister Pranab Mukherjee Wednesday sought “collective initiative” of the central and state governments and speedy implementation of the Goods and Services Tax (GST) to control price volatility in the domestic market.

"The bill (for constitutional amendments) has to be introduced in this session, has to be examined by the Standing Committee, it has to be ratified by 15 states. Otherwise, there will be another delay... I seek cooperation of the entire House," he said replying to the discussion on a Motion on Inflationary pressure on the economy in Lok Sabha.

He said the empowered committee of state Finance Ministers are meeting on GST today.

"The empowered committee of state FMs, they are meeting... if we can do that not only petroleum products, but also the entire range of products that can be covered will be under (the new tax) mechanism and it will be a win-win game," he said.

He added that the levies on petroleum products account for 34 percent of states` revenues.

"Petroleum sector is an important revenue yielding measure, 34 per cent of the states` revenues comes from petroleum products. In 2009-10, Rs 72,000 crore was raised by states. I know petroleum prices should be rationalised, but how can we do it?" he said, suggesting that GST would help bring down volatility in prices of petrol in domestic markets.

Mukherjee also sought the Opposition`s cooperation for including even petrol in GST.

However, the discussion so far on GST between the Centre and states have excluded petroleum products from the purview of new indirect tax regime.

State finance ministers are meeting here today to discuss the Centre`s proposal of a 3-rate structure for roll out of GST from April 1, 2011, which would subsume various indirect taxes.

They will also discuss the constitutional amendments required to roll out this new indirect tax regime, which will replace the excise duty and service tax at the Central level and value-added tax at the state level, besides the cess, surcharges and local taxes.

He asked for collective effort of the Opposition to help him bring the constitutional amendments, reminding that the BJP in its own manifesto in the last Lok Sabha elections had promised to roll out GST.

"If we can do it (introduce GST) then the entire spectrum of services tax, excise and VAT will be brought under the constitutional mechanism. We shall have to do it collectively."

Last month, Finance Minister Pranab Mukherjee proposed a three-rate structure for GST -- 20 percent for goods, 12 percent for essential goods and 16 per cent for services.

States and the Centre are proposed to equally tax the common base of goods and services.

Reiterating the government’s view that the Centre alone cannot be blamed for price rise, the minister said: “Today seven states are being ruled by the principal opposition party; three by the Left parties and Uttar Pradesh by the BSP. Therefore, handling the inflationary pressure is the collective responsibility of the state political leadership of the states and the Centre.”

Why price rise?

Explaining the factors behind high prices, Mukherjee said pulses and vegetables are still in short supply as last year’s production was below estimations due to bad monsoon.

“At present, we are facing around 15 percent short supply of pulses in the domestic market.”

He added that the government’s decision to increase the minimum support price of wheat and paddy and the administered price of sugar cane also put pressure on the price front.

“The decision was increase MSP was not a populist measure. It was hiked to boost production so that the soaring demand can be met. But production did not go up last year due to bad monsoon,” Mukherjee said.

He further assured the House that the government will take steps to build new grain warehouses.

-Agency Inputs