The state governments are likely to pitch for exclusive rights to tax businesses with turnover below Rs 1.5 crore, as the newly constituted GST Council holds its first meeting here from September 22 to 23.
Currently, Rs 5-10 lakh is the threshold for VAT in most states while manufacturing units with turnover at or above Rs 1.5 crore attract excise duty, and service tax is payable by units with revenue of Rs 10 lakh and above.
GST Council, where both the Centre and states are represented, is a constitutionally empowered body; it is expected to take a clutch of decisions, including the rates for the proposed Goods and Services Tax.
Officials told FE that the two-day session of the council would primarily focus on deciding on the thresholds for businesses to be under GST ambit, the exemptions lists, and mechanism for compensation to the states in case of any revenue losses.
“After the issues related to exemptions and thresholds limits are sorted, the states would be able to quantify if they would encounter any loss. Post that the discussions would focus on finalising the rates,” said a senior official.
The Narendra Modi government’s plans to roll out GST from April 1, 2017. The GST Council, chaired by Union finance minister Arun Jaitley, would have a timeline of two months from the date of first meeting to put a basic structure in-place.
On September 17, revenue secretary Hasmukh Adhia said there could be a scenario of multiple GST rates on the lines of some European countries.
“Instead of a single GST rate, there are multiple GST rates in some European countries. We, too, may have to begin with multiple rates and this is required to protect the poor and the middle class,” Adhia said in Ahmedabad.
There has yet been no consensus on the rate of the GST. The panel headed by chief economic adviser Arvind Subramanian had recommended a revenue-neutral rate (RNR) of 15-15.5%; this is the rate at which the current collections the state governments and the Centre would be protected. Split into three rates, merit, demerit and standard rates, a standard rate of 17.69% was proposed based on certain assumptions. Currently, services are taxed at nearly 15% (including the Krishi Kalyan cess) while the combined levies of the states and the Centre on approximately 70% of goods is on average 27-30%.
Adhia said the rate structure will be such that “the overall burden of tax will come down in most commodities”. But a final decision on this will be taken by the GST Council.
The NDA government has been working to build political consensus on the GST and hopes to have it in place by April 2017. To this end it made several amendments to the draft Bill, inter alia removing the additional 1% interstate levy on the supply of goods, a key demand of the Congress and making it compulsory for states to be compensated for any loss of revenue for a period of five years.
The states will have two-thirds of the voting rights in the GST Council while the Centre will have a one-third right. A resolution will need to be passed by a three-fourths majority.