With the sharing of administrative powers a tough nut to crack, the Goods and Services Tax (GST) Council comprising the Centre and states on Thursday sidestepped it and devoted productive time to make the principal Bill of 195 sections, defining the comprehensive indirect tax, foolproof and ready for tabling in Parliament and state assemblies.
If the council manages to firm up the two other draft laws on integrated GST and states’ compensation on Friday, that will throw up the possibility that Parliament’s Budget session could take up all the three Bills, technically not ruling out GST rollout on April 1. But most analysts said that this was wishful thinking: The Integrated GST (IGST) Bill, which will determine how the GST is levied, collected and appropriated on inter-state transfers and imports, is integrally linked to the vexed issue of separation of administrative domains between the Centre and states, they pointed out. The chances of an imminent consensus on who will assess/audit who looked remote in the post-demonetisation, vitiated political climate, they said. Further, the law ministry’s opinion that the Centre alone could administer IGST could prove to be a stumbling block in meeting the states’ demand that all businesses with turnover up to R1.5 crore should be left to them exclusively.
“We have almost given final shape to CGST, SGST drafts, with only three-four clauses related to territorial definition and state boundaries left for discussion. IGST and compensation laws will be discussed on Friday,” a senior official told reporters. There is a constitutional compulsion on the Centre and states to usher in GST before September 16.
The cross-empowerment issue is about how to divide the 10-million indirect tax assessee base between the Centre and states for administrative and audit purposes. An agreement had earlier been reached that there won’t be dual control on any taxpayer; that is each business will either report to the centre or the respective state. But if IGST is to be left with the Centre, then dual control might become necessary in cases of businesses with inter-state presence.
The states, keen to protect the local bureaucracy, argue that they have the infrastructure deployment at the grassroots level and small taxpayers are familiar with local authorities. The central government, on the other hand, is not in favour of the demand as it wants a single-registration regime for ease to service taxpayers, believing firmly that the states have yet to acquire to competence to assess this segment of the taxpayers, 3 million at last count.
Opposing the Centre’s proposal for a vertical split of the assessee base for administrative purpose, the states are building rationale for keeping small taxpayers with themselves: Taxpayers with a turnover above Rs 1.5 crore contribute 90% of the revenue, even as 93% of the service tax assessees and 85% of the VAT taxpayers have a turnover below Rs 1.5 crore, Kerala finance minister Thomas Isaac had said.
At Friday’s meeting of the council, sources said, the Centre, armed with the law ministry’s view, might propose two formulas: Cross-empowerment where every year both the Centre and states will decide who will audit whom on the basis of risk parameters and a complete vertical division for three years, with a Centre-state ratio of 4:6; with a mirror image approach favouring the Centre for large taxpayers.
At its meeting on November 4, the GST Council had agreed on a four-slab structure — 5, 12, 18 and 28% — along with an additional cess on luxury and ‘sin’ goods to raise the funds for the Centre to compensate the states. The council is yet to take a finalise the list of items under each tax bracket, although a committee of officials has prepared a draft in this regard. The council also needs to decide on the rate for precious metals, including gold, although sources say 3-4% rate is under active consideration.
As per the plan, items constituting half of the consumer price index (CPI) basket including food grain will be exempt from GST. Many other goods of mass consumption, together another tenth of the basket, will be taxed at 5%; a quarter of the CPI basket will come under either 12% or 18%, the two “standard rates.” These apart, items that currently suffer a real tax incidence of 30-31% will come under the highest rate of 28% and so will the four demerit items — tobacco and tobacco products, aerated beverages, luxury cars and pan masala — on which the taxes now are 40-60%, including cesses. Over and above the 28% levy, the four demerit goods and possibly many other items will be brought under a luxury cess in order to find resources for states’ compensation, agreed to be full for the first five years since GST rollout. With this impost and the existing clean environment cess (all other existing cesses will be subsumed in GST), the Centre expects to garner Rs 50,000 crore annually.