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See no reason why July 1 GST roll-out date must be changed: Kerala Finance Minister

With GST just over a month away from becoming a reality, the roll-out itself has come under a cloud--- the Finance Minister of West Bengal Amit Mitra has said that GST in its current form is not ready for introduction from July 1 2017. He also added that the Bengal legislature will not take up the bill until a solution is found.

However, revenue secretary Hasmukh Adhia is still hopeful of a July roll-out--- he held a townhall with industry representatives in Bengaluru and told the industry, "Don't be complacent"

Adhia also assured that the issue of input tax credit will top the agenda of the next council meeting--- however he also added that 100 percent input tax credit is not financially feasible.

CNBC-TV18's Shereen Bhan discussed the feasibility of July 1 2017 roll-out of GST with Kerala Finance Minister Thomas Isaac.

Below is the transcript of the interview.

Q: Let me first get you to comment on the statement that has come in from the Finance Minister of West Bengal Amit Mitra, who was the chairman of the empowered committee as well, saying that the GST is not fully prepared and ready and that rules and forms not completed. So, July 1 must not be finalised as the date of the roll-out. Your comment on Amit Mitra's statement?

A: I haven't discussed the issue with West Bengal finance minister but we have been discussing the date of July 1 2017, in fact in the last year's council also we had decided. So, I don't see why we should change it. Now certainly preparations will be going on. The law is ready, rates are ready, the electronic backbone is almost done, there may be some troubleshooting to be done as we go along but having decided to take the plunge why should we hesitate now?

So, the issue can be discussed at the meeting on June 3 2017 but with centre having assured the states 14 percent growth, I don't think most states would be interested in shifting the date.

Q: Let me ask you about some of the contentious issues that are yet to be taken up and will be taken up on June 3. First, is this business of the input tax credit. The revenue secretary today clarifying that perhaps there could be some upward revision, he hasn't quantified what that could be but it cannot be a 100 percent. He did say that this is going to be top of the agenda when the GST council meets on June 3. Your comments on that?

A: I have always been of the opinion that I have got on record that the present GST rates determined are not revenue neutral. In state of Kerala there are two different classification of commodities, there are 1200 of them. Under VAT 1000 of them were under 14.5 percent and now they are at 28 percent, which means state would get 14 percent SGST and only 260 commodities remain. So, with these rates centre will have to dole out a huge compensation. So, it is a call the centre has to take. I have been saying that this is not revenue neutral. Centre and states combined revenue is going to take a hit. I am happy that some rethinking is around.

Q: One of the issues and that has to do with gold I believe that you are perhaps in the minority on that issue because Kerala has been asking for 5 percent as the rate which is your current VAT rate on gold. What is your sense on where we could finally see the rates being finalised for gold?

A: We are not in the minority. In fact majority states I am certain would like to have minimum 5 percent rate on gold. Government of India said this, Arvind Subramanian's report is there. What is the rationale for having a concessional rate on gold? It is not a necessity. Even when necessities are taxed at 5 percent, 12 percent, how can you justify gold be taxed at 1-2 percent? If you are going to do that then you have to raise the tax on other commodities, there is a trade-off. It is not a win-win situation.

Price of gold has increased 5 fold in the last two decades, now what is there to crib about a 5 percent increase? There is no rationale whatsoever in keeping gold at a low rate.

Q: One of the other issues that is now being debated is on whether there should be differential rates even on goods. We have tried to experiment on the services front but even on goods - whether a certain kind of biscuits should be at one rate and certain kind of biscuits should be at another rate, certain kind of footwear should be at one rate, leather footwear maybe taxed at a higher level. What is the sense of the GST council on this and does this not complicate matters further?

A: I have never been a fan of single rate. You should not lose the basic principle of equity of distribution of the poor and rich. Therefore I would always argue chappal's which are worn mostly used by the poorer sections, they can be at lower rate and you tax the shoes and so on at a higher rate, what is wrong with that? Or branded commodities, there are unorganised small scale producers, why should their bread and biscuits be taxed at the same rate of multinationals. You can have two categories of branded commodities and unbranded commodities. That is one way of supporting unorganised sector, I am for that. I am not a fan of one single rate.

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