With a seeming agreement between the Centre and states on Friday regarding the three draft laws for the goods and services tax (GST), whether the new comprehensive indirect tax will roll out from the April 1 next year solely depended on resolving the thorny issue of division of administrative powers by the GST Council on Friday, the first of a two-day meeting.
“The Centre’s is an intransigent stance. We are unwilling to allow a purely vertical split of the administrative powers. We want exclusive control on businesses with turnover below R1.5 crore,” Kerala finance minister TM Thomas Isaac said after the council’s meeting on Friday.
Finance ministers from many other non-BJP states too echoed the same view.
Earlier in the day, speaking at a function organised by a media organisation, Union finance minister Arun Jaitley drew attention to the fact that both the Centre and states had a “constitutional compulsion” to roll out GST before September 16 next year.
“The government notified GST on September 16 and the constitutional amendment itself says the current indirect tax system can continue for one year, after which the GST has to come,” he noted.
Indicating that states also looked forward to the April 1 deadline, Isaac and Tamil Nadu minister K Pandyarajan there were no problems with the provisions of the draft laws and if a consensus could be reached on the issue of administrative control on Saturday, GST could be ushered in without delay. Assessing/audit powers also needed into built into the draft laws, Isaac said.
The Centre is opposing horizontal division arguing that if below-R1.5-crore revenue taxpayers are left to states and others brought under cross-empowerment, it would be skewed distribution as the bulk of the assessee base would then go to the states.
In fact, as the cross-empowerment issue threatened to stall progress, the council on Friday sidestepped it and started chapter-wise discussion on the three draft laws: The model GST law (the central and state GST laws will be framed on the basis of this), the integrated GST Bill for levy of tax on imports and interstate trade and the law for compensating states for any revenue loss.
While industry in general is worried about an enabling non-profiteering clause in the model GST law and e-commerce firms fret about the retention of the tax collected at source (TCS) obligation on them, the council was about to endorse both, sources said. The anti-profiteering provision — which could be implemented only with the setting up of a designated authority and framing of the relevant rules — compels businesses to pass on the benefits from any reduction in output tax and increase in input tax credit as a result of GST roll-out. Pratik Jain, partner and national leader, indirect tax at PwC India, told FE that although the principle might be welcome, its implementation could bring undue hardship to industries. “Cost has many elements and tax is only a part of it,” he noted.
Government sources, however, said that with the clearing house mechanism for input tax credit on the IT (GSTN) platform, it wouldn’t be difficult for the government to compute the increase in tax credit. Allaying industry’s concerns, Jaitley said efforts were on to make taxation process far simpler and make rates more reasonable. For instance, he said, the GST Council was deliberating on ways to reduce the taxation process, including assessment by tax officials.
Meanwhile, the state finance ministers also demanded a discussion — outside the framework of the GST Council — on Saturday over the “decline in states’ revenue” due to the Centre’s demonetisation move. Jaitley is learnt to have agreed to this demand.
At its last meeting, 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, such as tobacco, to raise the funds for the Centre to compensate the states. The council is yet to take a call on the rate on precious metals, including gold, but sources say 3-4% rate is under active consideration. Separately, a committee of bureaucrats from the Centre and states are working on which items would fall in what tax bracket in the GST regime.