Though most of the states have welcomed GST because it is beneficial for both states and Centre, the biggest concern is about the compensation. States are worried about the revenue loss. The Union Govt stand is that compensation will be given in phased manner with first three years full compensation, fourth year 75 per cent and fifth year 50 per cent. The point of contention is that the states have demanded full compensation for the five year period of GST replacing their local taxes, a position that may create hurdle in plans for roll out of new tax regime from next year. The proposed Goods and Services Tax (GST) will help reduce the costs and fast track growth. The Centre feels implementation of the tax regime has the potential to significantly improve the growth story. The states fear fall in revenue collection to their kitty and to overcome these deficits have been demanding tax reliefs in manufacturing and exports of goods and services. Efforts have been on since 2007 to evolve a consensus to bring in the reforms and every time it failed to materialise and situation remained static till date. Most of the states which opposed the new tax regime have been demanding compensation for phasing out Central Sales Tax (CST) which has remained a concern for Union Govt. Not only this states have been looking forward to revenue protection. During the UPA rule some of the BJP-ruled states like Madhya Pradesh and Gujarat had blocked the ambitious tax reforms arguing that the states would lose manoeuvering space. States like Tamil Nadu which is a net exporter with large manufacturing base fears large revenue erosion if the tax rules are introduced. Jammu and Kashmir has been strong supporter during the NC-Cong coalition but with PDP-BJP coming to power it opted out of it. The former Finance Minister Abdul Rahim Rather way back had asked the Centre for protection of the financial and constitutional guarantees available to the State under its own Constitution and Constitution of India thus making its stand clear.
