Apprehensions raised by the State over apportioning of funds from the divisible tax pool under the new Goods and Service Tax (GST) regime are likely to be allayed at the next meeting of the Empowered Committee of State Finance Ministers.
The committee can well take a decision on sharing the residual amount in the Inter-State GST (IGST) account with the States in line with the formula laid by the Finance Commission and it does not warrant another Constitutional amendment.
Moreover, the Centre will only try to mollify the States in pushing through the procedures that have to be completed for implementing the tax reform by the April 1, 2017, deadline set at present. Antagonising the States would not be in the interest of the Centre and it is expected to accede to the demand raised by Finance Minister T.M. Thomas Isaac, sources said.
ADVERTISEMENT
Dr. Isaac had expressed reservations about the amendment made to the Bill by Union Finance Minister Arun Jaitely in the Rajya Sabha in deviation from the consensus reached at sharing the IGST and the letters he as well as West Bengal Finance Minister Amit Mitra had wrote to the Centre had triggered a discussion too.
But doubts have been raised about the quantum of the benefits that the State will accrue in the new tax framework. According to Jose Sebastian, Associate Professor of the Gulati Institute of Finance and Taxation, service sector contributes to about 61.5 per cent of the Gross State Domestic Product, but it is not the size of the service sector. But the presence of taxable size of the service providers was what matters in the new taxation milieu, he said.
Almost all service providers such as courier agencies, travel agents, tour operators, real estate agents, cable operators, catering services, internet café, and beauty parlours can be seen in every small town. All these are taxable services as per the provisions of the Central Service Tax.
ADVERTISEMENT
But whether such services would come above the proposed threshold limit of Rs.10 lakh was an issue that warranted serious discussion, Dr. Sebastian said.
Unless the States are given the freedom to fix the threshold, Kerala may not be able to mobilise substantial revenue as expected. Education and health are two prominent sectors in the State.