The Goods and Service Tax, already delayed by three years, is unlikely to be implemented any time soon because most state governments believe the Union government will not initiate major economic policy changes as it approaches the 2014 general elections.
Chief ministers of states ruled by Opposition parties go a step further. They say GST will not be implemented in the tenure of the current Congress-led coalition.
Finance Minister Pranab Mukherjee conceded, when asked when GST would come, that political conditions were not propitious for its early roll-out.
"It is a measure that requires a constitutional amendment. And that requires two-thirds majority in Parliament," he said at a press conference.
Senior ministers within the United Progressive Alliance government have also told chief ministers of both Congress-led and Opposition-ruled states that the Union government will not push for major initiatives like GST until after the general elections.
"UPA leaders tell us major economic policy is initiated only in the first or the second year of a government. Since 2013-14 will be an election year, the government doesn't want to implement GST, as it will take at least another two years to stabilise.
"The implementation of GST in the last year could rattle people, which could ultimately affect the Congress' performance in the Lok Sabha elections," said the finance minister of a BJP-ruled state.
State governments are worried they are already incurring heavy losses and the Union government has not given them any compensation.
The Union government has provided only Rs 300 crore (Rs 3 billion) as the CST (Central Sales Tax) component to states in this year's Budget and the finance ministry has categorically said there would be no compensation for 2011-12. So, the Budget 2012-13
is silent on CST compensation.
"The problem is that in this Budget, the government has not outlined when GST will be implemented. Earlier, the government had said it would be implemented in 2011. Then the deadline was changed to 2012.
"But, in this Budget, the government is completely silent on the issue. Since the general elections are due in 2014, it would be difficult for the government to go for bigger reforms like GST in the last year of the Budget. It seems the government is not serious about implementing GST," said Sushil Modi, the Bihar finance minister.
Modi said the government had reduced CST rates from four to two per cent and there was no assurance on the losses incurred by states.
"The states had claimed Rs 19,000 crore (Rs 190 billion) in 2010-11 but only Rs 6,000 crore (Rs 60 billion) was given. There is no provision in 2011-12 and 2012-13, so this is a big issue. I will call for an Empowered Committee meeting to discuss these issues," Modi added.
It is not only BJP-ruled states that are worried. Congress-ruled states have similar apprehensions.
"The rolling out of GST would help curb tax evasion and check red-tapism. The only concern is the delay in the implementation of GST, which has been in the works for three years. The reduction in CST has led to a revenue loss of over Rs 3,000 crore (Rs 30 billion) during 2011-12," said Kiran Chaudhary, excise and taxation minister of Haryana.