The Goods and Services Tax (GST) Council on Monday arrived at a consensus on contentious issues such as administrative control over taxpayers in the new indirect tax regime, thus paving the way for GST to be introduced this year, although three months later than the Centre’s original rollout deadline of April 1, 2017.
“The issue of cross empowerment and dual control was taken up and we discussed the issue for the entire day,” Union Finance Minister Arun Jaitley told a press conference following the conclusion of the Council’s ninth meeting.
“And we have been able to arrive at a decision on this issue. The entire taxation base will be shared between the assessment machinery of the Centre and the States,” he said.
Another area of contention between the Centre and the States was the issue of who would get to collect tax on the economic activities taking place in Indian territorial waters. This issue has also been smoothened out, Mr. Jaitley said.
Meeting in February
The Council will now meet on February 18 and approve the legislation that need to be cleared by Parliament and it is expected that those would be passed and ratified during the Budget session.
“Simultaneously, after they are free from the preparation of these drafts, the officials who are lending technical support will start working out the fitment of various rates into the various slabs,” Mr. Jaitley said. “This exercise will in all probability take us well into the month of March.”
“So I requested the Ministers to give their opinion about the realistic dates and there was a broad view that July 1 appears to be more realistic [for the rollout of GST],” he said. “Since it is a transactional tax, it can be introduced anytime. Also, they felt that industry and trade would have to be given adequate notice and once the rates are decided, the GST network would have to be modified suitably.”
As per the formula for dual control of assessees, 90 per cent of those with a GST turnover of Rs. 1.5 crore or less will be assessed for the purposes of scrutiny and audit by the States, and 10 per cent by the administrative machinery of the Centre.
“Those above a turnover of Rs. 1.5 crore would be assessed in the ratio of 50:50 between the Centre and the States,” Mr. Jaitley said.
“Finally the GST Council seems to have made a major breakthrough by agreeing on the contours of ‘dual control’,” Pratik Jain, Partner and Leader-Indirect Tax at PwC India said. “With indication of the revised implementation date of July 1, 2017 for GST, industry gets much needed clarity and some additional time for preparation for this huge reform.”
The Finance Minister said that while the power to levy and collect the Interstate GST (IGST) will lie with the Central government, a special provision in the law would cross-empower the States in the same ratio agreed upon for tax assessees. “In the exercise of IGST, where there are contentious issues between conflicting States with regard to place of supply, etc, obviously one of the States cannot assess, and therefore those assessments will necessarily take place by the Centre,” Mr. Jaitley said. “As far as the area of 12 nautical miles into the territorial waters is concerned, it’s a part of the Centre’s territory. But as per convention, the States will be empowered to collect tax on any economic activity there,” he said.
“All the Ministers present agreed to the proposal except the West Bengal Minister who disagreed to the limited extent that assessment below Rs. 1.5 crore which are divided 90:10 between states and centre, his dissent was confined to the issue that it should be 100:0 not 90:10,” Mr. Jaitley added. “On all other proposals, he also agreed.”
Going forward, Mr. Jaitley explained that this consensus would have to incorporated into the draft legislations, following which all the four draft laws — the Central GST, State GST, Interstate GST, and the Compensation Law — would have to be tabled for approval in front of the GST Council during its next meeting on February 18.
Following this, the laws would have to be tabled for approval in the respective legislative bodies of the Centre and the States.
“The other critical aspects to be watched out are GST Council’s discussions on supporting GST legislations, publication of rules and GST rates,” Rajeev Dimri, Leader, Indirect Tax, BMR & Associates said. “Clarity on these aspects is critical for India Inc to analyse the GST impact on their business to realign their systems, processes, operations, pricing structures and logistics by the go live date.”
