Jammu and Kashmir Finance Minister Haseeb Drabu today set the record straight on GST, saying the empowered committee has agreed that the proposed goods and services tax will not be extended to the state in the current form.
The state government will come out with a separate proposal on how to participate in the GST framework without compromising its constitutional position on taxing services.
Drabu, according to an official release, made these submissions at a meeting of the Empowered Committee (EC) of State Finance Ministers in the national capital on July 26.
"I made the case before the EC that J&K's special taxation powers have to be protected while rolling out GST," Drabu said, adding that J&K is the only state in the country with powers to tax services.
The committee, he added, has agreed with the state's contention and asked it to come up with separate proposal.
Union Finance Minister Arun Jaitley, who was also present at the meeting, is believed to have made it clear that it is for the state government to decide the manner and method of GST applicability while safeguarding its own taxation powers.
The GST Bill, currently stuck in the Rajya Sabha because of resistance by main Opposition Congress, is likely to be taken up for discussion next week.
Drabu is of the view that there are some other contentious issues in the existing GST Bill that need to be addressed before extending the new tax regime to J&K.
Elaborating, he said that once the new tax takes off, the GST Council becomes more powerful than state legislatures, which is a matter of concern for the J&K government and needs to be sorted out, given the state's special status.
He also referred to the challenge of continuing exemptions for the industry in the new set-up.
"The state government is giving various tax exemptions to the industry. In the GST regime, all such exemptions have been done away with," he said and added that the challenge before the state is to keep the exemptions without breaking the GST chain.
"We will have to take care of all these issues before joining the GST regime," Drabu clarified.
The GST legislation, which intends to convert 29 states into a single market through a new indirect tax regime, was earlier planned to be introduced from 1 April this year, but the deadline was missed as the legislation to roll it out remained in limbo in the Opposition-dominated Rajya Sabha.
On 27 July, the Cabinet had cleared changes in the legislation, including removal of the 1 percent manufacturing tax and providing guarantee to compensate states for any revenue loss in the first five years of rollout of the ambitious indirect tax regime.