The idea of one nation, one tax under the Goods and Services Tax regime could be in trouble, with complications regarding the treatment of tax laws in Jammu and Kashmir not yet being resolved, according to tax experts. The most likely solution to this is for the Centre and States to reach an agreement on tax matters outside the provisions of the GST laws, they say.
“Any central legislation relating to J&K has to be approved by the J&K assembly first,” M.S. Mani, Senior Director at Deloitte Haskins & Sells explained. “For example, the Centre can enact a tax law that applies to all other States and it doesn’t need the approval of those assemblies, but it needs that for J&K. That was a provision added when the State joined the union of India.”
This provision requiring the approval of the J&K assembly means that the Central GST and the Integrated GST laws currently exclude J&K. In the case of Central GST, the law will have to be amended in Parliament after the J&K assembly passes the State GST law, something it is yet to do.
“If the SGST Bill is passed by J&K, then the CGST can be amended,” Mr Mani added. “But this will require Parliament and should ideally be done before July 1. However, in terms of the economic union of India, it will not be so harmful if J&K is out of GST for the first few months. But the question to be asked is why states like Tamil Nadu and West Bengal haven’t yet passed the SGST law.”
IGST more complex
Issues surrounding the IGST law are even more complex, since it deals with inter-state transactions.
“Currently, the IGST Act excludes J&K,” Pratik Jain, Partner and Leader of Indirect Tax at PwC India said. “However, the intention seems to be that in transactions from other states to J&K and vice versa would also be subject to IGST. However, the mechanics for this are not yet clear.”
“The very fact that the IGST and CGST laws don’t extend to J&K was known since June last year when the draft laws were released,” Rajiv Dimri, Partner at BMR Advisors said. “One option is for the J&K to remain out of the GST laws, but for the assembly to set a mechanism for vendors within the state to be able to avail of input credits.”
