Almost all states in the country \u2014 with the only notable exception of Tamil Nadu \u2014 on Tuesday lent their weight to the Centre\u2019s determined bid to quickly usher in the goods and services tax (GST) by endorsing its model GST law and decried the Congress party's obdurate demand for capping the tax rate in the Constitution, leaving the main opposition party virtually isolated in the matter. The overwhelming support to the indirect tax reform at a well-attended meeting of the empowered committee (EC) of state finance ministers in Kolkata, and the likelihood of the government winning greater backing for the relevant Constitutional Bill in the Upper House, boosted the chances that GST could become a reality from April 1, 2017. On the constitutional cap on the GST rate, finance minister Arun Jaitley said: \u201cThere is a complete consensus on that, there should not be any such ceiling as exigencies may arise in future. Now it is left to the GST council.\u201d However, given that the tax reform had missed several deadlines in the past, the minister was guarded when asked whether the GST would kick in from the next financial year. \u201cNo deadline as such,\u201d he said, adding, \u201cWe will try our best to bring the constitutional amendment in the monsoon session of Parliament. Then the central GST and sate GST legislations will be put in place.\u201d Separately, imparting urgency to the process, the Union finance ministry posted the \u201cmodel GST law\u201d on its website outlining the structure, administrative set-up and dispute resolution machinery for the GST regime. After Tuesday\u2019s EC meeting, it was clear that there no longer existed any discord between the Centre and states on the mechanism for compensating states for any revenue losses that they might incur in the first five years after GST is implemented. West Bengal finance minister and chairman of the empowered committee Amit Mitra said that the Centre and states would now put their minds together to decide on the revenue-neutral rate (RNR) and resolve the issue of \u201cdual control\u201d on small traders. As far as RNR is concerned, the inputs included the recommendations of a committee headed by chief economic adviser Arvind Subramanian which put it at 15-15.5% with a strong bias against exemptions, and an NIPFP report which computed RNR of close to 27%. (While estimating the RNR at 15-15.5%, the Subramanian panel had split that into a standard GST rate of 17-18%, which could be competitive against some emerging market economies and the EU, a \u201clow rate\u201d of 12% for essential goods and a demerit rate of 40% for tobacco products and some luxury items.) \u201cThis is a huge difference (between the rates recommended) and the EC will have to derive a logical rate, which is good for businesses and (would not result in) losses to the states. If the rate is too high business will suffer and if it is low the states will have a deficit,\u201d Mitra said. A team of officials will make a presentation to the committee on the RNR issue by the second week of July, he said, indicating his preference for an \u201coptimal\u201d GST rate. The issue of dual control arises in the context of the proposed new turnover thresholds for taxable person in the GST regime. GST, which will subsume excise duty, state VAT (including the countervailing taxes on imports) and service tax, will be levied on any business with aggregate turnover of `10 lakh or above (`5 lakh for those in the Northeast). Currently, excise duty is payable to the Centre by manufacturing units with an annual turnover above Rs 1.5 crore, service tax is payable for turnover above Rs 10 lakh and state VAT thresholds vary in the range of Rs 5-10 lakh. States are worried over the Centre having a say on the relatively small business, which are now their exclusive tax sources, in the GST regime. Indicating that states would administer the GST for turnover up to Rs 1.5 crore and there would be dual administration in the case of bigger firms, Mitra added that the matter would be resolved \u201cseamlessly\u201d by the EC at its next meeting. Commenting on the Rs 10 lakh GST threshold (which is also mentioned in the model GST law released on Tuesday), experts said industry was hoping for a higher threshold. \u201cA GST threshold limit which is so low as Rs 10 lakh may be a zero-sum game as the administrative cost of compliance on both ends would equal the tax collected. The EC shall consider a higher threshold,\u201d said Sachin Menon, partner and head of indirect tax, KPMG in India Jaitley said: \u201cThe first thing which will have to be done is to pass the constitutional amendment which has to be then ratified by the states. Then Parliament will have to pass the CGST Bill and states the SGST Bills.\u201d He also reiterated that the Centre was \u201cflexible\u201d on the proposal to have a 1% tax on interstate supplies for two years to help the manufacturing states, which fear losing their current revenue advantage once GST, a destination-based tax on consumption, is implemented. The Subramanian panel and the Congress party had opposed such a levy, saying it would undermine the input tax credit mechanism. Analysts said the GST's economic gains could be optimally derived only if it is comprehensive and rate differences are minimum. The Subramanian panel had said that if all exemptions are removed and petroleum, alcohol, real estate, electricity, education and healthcare are brought under GST, the tax rate for all items except the demerit goods can be as low as 12% and it might turn out to be even revenue-surplus for the government with the compliance gains such a low rate will produce. As many as 300 indirect tax exemptions are currently available, causing the exchequer to lose an amount equivalent to 2.5% of GDP. The ruling National Democratic Alliance has slightly improved its tally in the Rajya Sabha after the recent elections to the Upper House, while many non-NDA political parties including the Trinamool Congress, CPI(M) and NCP are rallying together for GST. Model GST law Meanwhile, analysts pointed out that the draft GST law simplified certain things. The proposal to treat all intangibles including software as \u201cservice\u201d would put an end to the long-pending debate over classification of software. Also, the proposal to treat work contracts as service would help infrastructure industries. \u201cIt has been categorically said that recipient of goods\/service would mean a person who is responsible to pay the consideration. This is a welcome move and (reduce litigation,\u201d PwC analysts said in a note. However, they noted that subjecting e-commerce companies to tax collection at source (TCS) would raise their compliance cost.