The outcomes of the latest meeting of the Council tasked with steering the Goods and Services Tax regime are worrying. For one, it leaves the Centre hard-pressed to meet its intended deadline for the new indirect tax regime, April 1, 2017. Finance Minister Arun Jaitley had set a November 22 target to resolve all operational issues with State representatives in the Council so that the rates and implementation modalities could be codified into law and passed by Parliament in the winter session. When it met for the first time in late September, things appeared to be on track, with the Council agreeing almost unanimously on technicalities such as the turnover thresholds for firms to be covered under the GST and the division of administrative control over tax assessees between the Centre and the States. A time-bound road map to finalise remaining details, such as the tax rates, compensation for States in case of revenue loss under the new system, as well as the legislative actions required in Parliament and the State Assemblies, was also agreed upon.
As the winter session approaches, that spirit of cooperation has evaporated: the Council has agreed on precious little, including the tax rates proposed by the Centre. Worse, the pact reached earlier on administrative control of manufacturing sector assessees has unravelled with States raising fresh concerns. The proposal to subsume in the GST all cess levies, several of them introduced by the present NDA government, has been discarded. This was a critical part of the official GST pitch and was backed by the Council in September. But now the Finance Ministry is keen on an additional cess on ultra-luxury and ‘sin’ goods to fund compensation for States losing revenue. It has suggested a cess may be better than the 40 per cent slab for demerit goods, mooted by a committee led by Chief Economic Advisor Arvind Subramanian along with two other slabs of 12 per cent and 17-18 per cent. With a four-tier GST rate structure, a 4 per cent tax on gold (in line with the CEA’s advice), in addition to some exemptions that would be granted as tax refunds, topped with the new cess to compensate States, the new regime could well just be old wine in a new bottle, from the taxpayers’ perspective. Mr. Jaitley has explained that the rate proposals are meant to prevent a spurt in retail inflation. But to bring about convergence with States at the Council’s next meetings in November and bring its showcase reform item back on track, the government needs to return to the drawing board.