1. Power struggle hits GST Council on day 2

Power struggle hits GST Council on day 2

The Union and state finance ministers would meet informally on November 20 to thrash out the issue politically and suggest their formula to the GST Council meeting on November 24-25 for endorsement.

By: | New Delhi | Updated: November 5, 2016 7:58 AM
The Union and state finance ministers would meet informally on November 20 to thrash out the issue politically and suggest their formula to the GST Council meeting on November 24-25 for endorsement. The Union and state finance ministers would meet informally on November 20 to thrash out the issue politically and suggest their formula to the GST Council meeting on November 24-25 for endorsement.

After deciding the goods and services tax’s (GST) rate structure on Thursday, the Centre and states hit a speed-breaker on Friday as they could not decide on how the audit and enforcement powers would be shared between them in the GST regime, despite several hours of confabulations. After evaluating many options, the two sides have shortlisted two — a mutually acceptable formula for horizontal division of the assessee base between the Centre and states and a vertical, 1:2 split.

The Union and state finance ministers would meet informally on November 20 to thrash out the issue politically and suggest their formula to the GST Council meeting on November 24-25 for endorsement, finance minister Arun Jaitley said. In the meantime, officials from both sides will deliberate on and finalise the four draft laws — those on central GST (CGST), integrated GST (IGST), compensation and state GST (SGST) — by November 15. When asked if the CGST, IGST and compensation Bills will be introduced in the winter session of Parliament, Jaitley said: “That is the effort.” The minister said he was still confident of meeting the April 1, 2017, deadline for rolling out the comprehensive indirect tax.

Emerging from the GST Council meeting, Kerala finance minister Thomas Isaac blamed “vested interests of the central bureaucracy” for the discord.

The Centre, he lamented, had reopened even the settled matter that goods traders/manufacturers with annual turnover up to Rs 1.5 crore would be under the states’ exclusive control. This was when the states wanted service tax assessees below the threshold also under their control in the light of new data that revealed there are 30 lakh such entities, he said, claiming that “most of the states are unwilling to compromise” on the issue. Pertinently, in the GST regime, the Goods and Services Tax Network (GSTN) will handle the taxpayer returns based on the principle of self-assessment. Its random selection for audit in a year will be limited to just 5% of the assessee base. So the whole quarrel is over who will audit these cases selected for scrutiny. However, calling the issue “an extremely contentious one”, Jaitley underlined the need for keeping the one-assessee-one-authority principle to avoid hassles to taxpayers and a situation where two authorities would compete for control over any particular assessee.

While the squabbling over turf is on, most tax experts believe that policymakers would do well to keep the service tax assessees with the Centre for administrative purpose till the states become more equipped in understanding the nuances of this tax. The Centre has gained considerable experience in this field over the last 20 years, they noted, and suggested that all services could be brought under IGST — which is to be levied on imports, interstate trade — which is exclusively collected by the Centre though both the Centre and states are appropriating authorities. In the case of large service-sector firms — like telecom companies and financial sector entities — reporting to different states would be very cumbersome, the analysts opined.

Experts also pointed out that to define taxpayers as service providers or traders in goods would be difficult in the GST regime, as the new tax is essentially a multi-point tax on transactions (consumption). Many businesses will have both manufacturing/trading and service components, they noted.

The GST Council had earlier decided that exemption threshold for GST would be Rs 20 lakh for all states except the northeastern ones and the three hill states of Jammu and Kashmir, Uttarakhand and Himachal Pradesh, in whose cases this limit would be Rs 10 lakh. Though no official data on the total number of indirect tax assessees in the country are immediately available, some tax experts said it could be somewhere in the region of 75 lakh. Some 40 lakh units pay state value-added tax and the service tax base is around 30 lakh, while the balance would be domestic manufacturers and importers registered under the central excise authority. The states apprehend that if the Centre keeps all entities paying service tax under its ambit and gets a share of VAT entities as well, it would unfairly gain. The Centre had earlier said the service tax units were around 11 lakh, and this was refuted by states.

Of course, the new assessee base would be significantly different considering the Rs 10-lakh threshold. Currently, the threshold for excise is Rs 1.5 crore, that for service tax Rs 10 lakh and state VAT is levied on organisations with a turnover above Rs 5 lakh in some states and Rs 10 lakh in others.

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