With the necessary constitutional amendment in place, the Union Cabinet on Monday approved the formation of the all-powerful Goods and Services Tax (GST) Council and set a virtual deadline — November 22 — for it to resolve a clutch of contentious issues: The GST rates, the business turnover thresholds for the new tax, the exemption list, the contours of the model GST laws, the way existing tax sops like area-based exemptions with sunset clauses would be grandfathered and the place of supply rules for revenue appropriation among states.
While the Centre is still open to views from the business community regarding their preparedness for meeting the April 1, 2017 target for the GST launch, it is nevertheless moving on a fast track, so that any lapse on its part won’t delay the new comprehensive, destination-based indirect tax on consumption. GST could potentially bring economic dividends for the country and hence, political ones for the ruling National Democratic Alliance.
The GST Council’s first meeting would be held on September 22-23 in New Delhi, revenue secretary Hasmukh Adhia said, adding that it would have two months to decide on all structural issues. “We are happy that we are running ahead of the time schedule. We have to call as many meetings of the council and sort out the issues, so that we are ready with the draft law,” he said. Asked whether the Centre was sticking to the April 1 deadline, Adhia responded, “So far, yes.”
The GST Council secretariat, to be fully funded by the Centre, would consist of an additional secretary and four commissioners of the rank of joint secretary. The Union revenue secretary will be the ex-officio secretary of the GST Council, while the chairman of the Central Board of Excise and Customs (which may be renamed Central Board of Indirect Taxes) will be a permanent invitee for all meetings of the GST council, but both won’t have voting rights. It has already been agreed upon among the Centre and states that the states will have two-thirds voting rights in the council and the Centre, one-third, while a resolution will need three-fourths majority. The council would be chaired by the Union finance minister and the minister of state for finance in charge of revenue will be a member. The states would have the flexibility to nominate either the finance, taxation or any other minister to the council.
Sources said the Centre’s idea is to introduce the Central GST and Integrated GST Bills in winter session of Parliament in November. In parallel, the states would be legislating the state GST laws.
Last Thursday, President Pranab Mukherjee approved the Constitution (122nd) Amendment Bill 2014 for GST. Both Houses of Parliament and 18 state assemblies had passed the Bill earlier.
The Centre and industry are pitching for a low GST rate; while the former believes this would improve compliance and boost revenue, the latter hasn’t made any commitment that prices would fall as a result. Chief economic adviser Arvind Subramanian also reiterated his preference for a lower GST rate as he believed “the higher the tax rate, the greater the distortion” in the system. Arguing against keeping the standard GST rate high to find resources for the compensation, he said the money for compensating states would have to found from elsewhere in the Budget. The rate, he said, would depend on the taxable base and other policy options which will have to be finalised by the GST Council.