The two-day GST Council meet that began on Thursday (22 December) and will continue today would take forward the discussion on the remaining 7 chapters of the model GST law.
Consensus has so far eluded on the model GST law in the previous meetings of the all-powerful GST Council. The subsequent GST legislations — CGST, IGST and compensation law — could not be introduced in the Winter session of Parliament that ended last week, and this has threatened the April 2017 rollout target of the GST.
Experts now say that implementation of GST should be postponed by three months to July next year as industry would need time to prepare their IT infrastructure.
Although, the Centre plans to implement the GST from 1 April, due to Constitutional compulsion the GST now could be rolled out by 16 September next year as the existing indirect taxes will come to an end, and it would not be possible for either Centre or the states to collect indirect taxes.
Day one of the two-day Council meet ended on Thursday with no discussion on dual control but discussed the GST bills.
However, Friday’s meeting will be important as the integrated GST Bill will discuss the contentious issue over the dual control of assessees. Besides this, the three GST bills – Central GST (cGST), Integrated GST and State Compensation Law – need to be approved by the Council before they can be tabled in the Parliament.
Failure to get a consensus on the issue would make it impossible for the government to implement the ambitious indirect tax reform from its target date of 1 April 2017, said a report in the Mint.
Already, finance minister Arun Jaitley has been emphasising that the luxury of time is not available for the GST implementation for the reason that if 1 April 2017, is the first possible day it can be implemented, then the last date also is constitutionally defined as 16 September, 2017.
“So the discretion as to when to implement is only five months and 16 days and that’s why we don’t have the luxury of time because after five months, the curtains will come down on the old taxation powers,” Jaitley had said earlier.
The dual control has been a sticking point between the Centre and the states, which has so far delayed consensus amongst the council members.
Here are the key points over this vexed issue.
1) The government wants to weigh on the pros and cons on the issues of cross empowerment to ensure single interface under GST, which will subsume excise, service tax, VAT and other local levies.
2) Dual control pertains to the issue of administration of transactions above Rs 1.5 crore. At the September meeting, it was decided that states would have exclusive jurisdiction over transactions below Rs 1.5 crore. For transactions above this amount, it was decided that a mechanism would be worked out to ensure that the same transaction would not be subject to dual audit/inspection by the centre and the state. This has resulted in tug of war between the Centre and states and has become a contentious issue.
3) State governments of Uttar Pradesh, West Bengal, Uttarakhand, Tamil Nadu and Kerala want exclusive control over small taxpayers below Rs 1.5 crore threshold. While the Centre has agreed to forego control on goods, but it is not yielding on services.
4) The GST council also arrived at an option of two proposals– horizontal division and vertical division to overcome the issue. a) Horizontal Division means tax payers would be divided both for administrative and audit purposes based on a cut off turnover. Those with a turnover over Rs 1.5 crore would be administered both by the Centre and states, while those with below Rs 1.5 crore would be administered solely by the state. b) The Vertical Division based on ratios assigns tax payers to a tax administration, Centre or state, for a period of 3 years for all purposes including audit. Tax payers could be divided in a ratio which would balance the interest of the Centre and the state, both with respect to revenue and spread of numbers.
5) The Centre, however, feels that horizontal division would be lopsided as 93 percent of Service Tax assessees and 85 percent of the VAT tax payers have a turnover below Rs 1.5 crore.
6) Last month, GST Council had failed to reach any conclusion on the dual control issue as states objected to non-availability of updated data on assessees of service tax, excise and VAT.
7) The updated figures shared by the Centre with the states shows the likely taxpayer base in GST would be 107 lakh, of which states account for 67 percent (71.7 lakh) and Centre is estimated to account for 33 percent (35.3 lakh). There are around 81.4 lakh VAT dealers, out of which active dealers are 66.5 lakh. For service tax, there are 38 lakh assessees, out of which 26 lakh are active assessees, while there are around 4,00,000 assessees for excise. Around 4,00,000 taxpayers are common to the Centre and the states, The Indian Express report said.