As the Goods and Services Tax (GST) Council comprising the Centre and states met here on Thursday — its first session after it was formed last week — a consensus seemed to emerge among the members to usher in the new tax from April 1, 2017. They have also resolved to fix the upper limit of aggregate turnover for taxpayers to opt for the hassle-free composition scheme at Rs 50 lakh, but restricted the facility to traders.
The council was also veering towards fixing the turnover threshold for a business to be under the GST ambit at Rs 25 lakh, although some smaller states pitched for an exemption level of R10 lakh. While the members were still squabbling over states’ demand for exclusive right to tax businesses below Rs 1.5 crore in sales, the idea of a moderate standard rate was clearly gaining acceptance among them, though it was not formally discussed, sources said.
Stating that Thursday’s meeting was held “by and large in true federal spirit” with no clear division on political lines, finance minister Arun Jaitley said the council endorsed the draft rules for its functioning. A draft law outlining the methodology for compensating states for any revenue loss in the GST regime would be discussed by the council on Friday, along with the provision of empowerment (dual control), he said.
Jaitley said the council would meet in quick succession over the next few weeks (the dates for the next session will be finalised on Friday) to decide on other issues including the rates. Sources said a three-rate structure seemed to be favoured by the Centre and most states at this juncture.
The composition scheme allows a registered trader to pay tax at a fixed rate (likely 1%) on turnover and avoid any further scrutiny by the taxman, as far as local (intrastate) sales are concerned. Those who opt for the scheme, however, would not be eligible for input tax credit, a reason why not all manufacturers and service providers might not find it attractive.
A committee headed by chief economic adviser Arvind Subramanian had recommended a standard GST rate of 17-19% and said that a low rate and technology would help boost compliance and protect the revenue interests of the the Centre and states, without pinching industry and consumers.
Kerala finance minister Thomas Isaac suggested that the rate for “essential” (merit) goods be much lower than the 12% recommended by the Subramanian panel, probably, even 4%. He said if the rate on gold is increased to 4% or so from 1-1.6% (Centre plus states) now and many consumer durables that can be classified as luxury (demerit) items are taxed at 22-24%, the standard rate could be brought down. The Subramanian panel, which recommended a revenue-neutral rate of 15-15.5% and a standard rate of 17-19%, had proposed a high rate of 40% for a clutch of demerit non-GST (excise) goods like luxury cars, aerated beverages, paan masala, etc, but Isaac is pitching for a much longer list of demerit goods.
In the powerful GST Council, the Centre and states will have voting strength in a 1:2 ratio; the council’s decisions will require support of three-fourth of the members, meaning neither the Centre nor states can do without the other.
The council, headed by the Union finance minister, will have to thrash out many contentious issues expeditiously so that the April 1, 2017, deadline for the GST’s introduction could be met. Apart from the rates and the tax’s applicability thresholds, the items on the agenda of the council include the exemption list, place of supply rules and the mechanism for compensating states for any revenue loss. Sources said a final decision on rates or the list of exempt items was unlikely in the ongoing two-day meeting, but a view was likely to be taken on the threshold of applicability of tax.
While the GST council vice-chairman could be elected by consensus or by ballot, some states are peeved at the “bureaucratic” circular issued by the Centre in this regard. On its part, the Centre is on the fast track in completing the formalities for introducing GST — while the several sections of the Constitutional Amendment (approved by President Pranab Mukherjee recently) have already been notified, a model GST law is under the consideration of states and the IT network (GSTN) for the new regime is being put in place.