Sources also said cross utilisation of CGST or SGST credit will be allowed for payment of IGST.
The union and state governments on Thursday finalised the framework for goods and services tax on inter-state commerce (IGST) aimed at removing all irritants that businesses face at present in paying taxes using the credits they have earned on taxes paid previously on raw materials and services. The framework would be formalised as a central IGST Act.
Sources said the Empowered Committee of State Finance Ministers, which met here, have accepted the report on IGST prepared by Central and state officials and discussed the finer points of the proposed Central enactment on Central GST (CGST) as well as the model state GST (SGST) law that states would adopt. Towards enabling these enactments, the Lok Sabha had on Wednesday passed the Constitution (122nd Amendment) Bill that redefines the taxation powers of the Centre and states.
Kerala finance minister and chairman of the Empowered Committee, KM Mani, said in his opening remarks that the two-day meeting would discuss reports of sub-committees on IGST, GST on imports and issues such as registration of traders, returns, tax payments and refund.
“Broadening of the GST tax base and subsuming various Central and state indirect taxes into GST are expected to be revenue neutral both for Centre and states,” Mani said. Madhya Pradesh finance minister Jayant Malaiya too said the revenue neutral rate of GST ought come down from the 27 per cent discussed earlier. States’ remarks favouring a lower GST rate come in the wake of finance ministerArun Jaitley’s promise in Lok Sabha on Wednesday that the actual GST rate should be lower than 27 per cent.
Mani also said at the beginning of the conference that the enabling legislation specifying the parameters for sharing IGST was a matter of concern.
Later in the day, the Committee approved the IGST report facilitating the union government to levy and collect IGST (which would be equal to the sum of CGST and SGST rates on inter-state supply of goods and services) and its sharing between the Centre and the states as recommended by the proposed GST Council. Consuming states would get the proceeds of the SGST component of it. Manufacturing states will not get any share but would have the right to levy an extra 1 per cent non-Vatable tax.
Sources who attended the meeting said that under the proposed IGST, states will not have any right to restrict input tax credits on interstate transactions as the idea is to facilitate free flow of tax credits and thus move towards a common national market. Sources also said cross utilisation of CGST or SGST credit will be allowed for payment of IGST.
“The agreed framework will ensure that no tax on inter-state commerce would stay with the manufacturing state as GST is a destination based consumption tax. The rules will ensure that funds of companies will not be blocked due to one state’s refusal to comply with credit set off,” said a source who attended the meeting. Under the new indirect tax regime, imports into the territory of India will also be deemed as inter-state commerce and attract IGST. IGST on imports, however, will not include basic customs duty, safeguards duty and anti-dumping duty.
Punjab finance minister Parminder Singh Dhindsa suggested at the meeting that the state should be allowed to levy purchase tax or cess on wheat, paddy, sugarcane, cotton and milk under GST too as the grain producing state would lose revenue from this levy in the new regime.
Dhindsa said this requires only an addition in the state list of taxable items and no change in Constitution Amendment Bill.
At the meeting, it was decided that once the new tax system is implemented, traders would be deemed to have registration if they do not get reply for their GST registration application in three days. States like Sikkim and Meghalaya asked for exemption from the user charges that the special purpose vehicle set up for creating IT infrastructure—the GSTN—would charge states for accessing tax databases.
Source : Financial Express