 "States fail to make a big leap on GST")
State governments on Friday took another small step towards a national Goods & Services Tax (GST), by agreeing to a keep a common exemption list. However, they failed to reach a consensus on the bigger issues of a revenue-neutral rate (RNR), dual control and a threshold for keeping small traders out of the tax net.
At the Empowered Committee (EC) of State Finance Ministers’ meeting here, the central government agreed to prune its exemption list to align it with those of states. At present, 96 items are exempted by the states under the Value Added Tax (VAT), whereas the Centre exempts 240 goods from levy of excise duty. The common items exempted by both are 84 and the Centre has agreed to exempt the remaining 12 items, too.
"The list will be common for services, too, and the Centre will revisit its Negative List under GST,” EC Chairman Sushil Modi (also Bihar’s finance minister) told reporters, adding a broad consensus had been reached on 80 per cent of the issues. However, asked whether the current government was committed to rolling out GST soon, he said, “This is an election year. So, you don’t know to what extent the government can take a decision in this regard.”
The states could not decide on RNR as the tax base is not known yet and the Centre has not worked out how much each state would get from service tax. The sub-committee suggested a narrow band above the floor rate be allowed only at the standard rate and not at the merit rate. It also proposed two rates for services. The National Institute of Public Finance & Policy has been asked to work out RNR and give a report in a month.
There was a broad consensus that the threshold may be kept at Rs 25 lakh. However, as some small states such as Himachal Pradesh, Uttarakhand and some in the northeast voiced concern that most of their traders would escape the tax at that limit, no final decision could be taken.
Currently, the threshold for VAT is Rs 5 lakh in most states, while it is Rs 1.5 crore for excise duty. If it is kept at Rs 25 lakh, 65 per cent of traders, who pay only three per cent of the total tax, will go out of GST, reducing a lot of administrative work for tax authorities.
The sub-committee suggested traders with annual turnover of less than Rs 1.5 crore should come under the administrative control of states, while those above this limit should be controlled by both the Centre and the states. There was no complete agreement on it.
However, there is uniformity among the states that traders with a turnover of less than Rs 1 crore be allowed to benefit from the composition scheme. A dealer can opt for a compounded levy of 0.5 per cent on taxable turnover, instead of paying GST at the standard rate; however, he will lose the right to claim tax credit. Though the sub-committee had proposed the threshold for this scheme at Rs 60 lakh, states suggested the limit be increased in view of the new limit of Rs 1 crore prescribed for income tax in the Budget.
For inter-state movement of goods, the committee suggested a new model called Compensatory VAT, as the states felt the earlier model had some minuses. No threshold has been proposed for inter-state movement of goods. This means anybody moving goods from one state to another would have to pay the tax.
Modi also said the states were upset that the Centre was not moving rapidly on clearing their dues for losses made due to reduction in the central sales tax rate, in anticipation of GST. The Centre had agreed to give compensation of Rs 34,000 crore but its annual Budget provided for only Rs 9,000 crore. Gujarat, Punjab, and Haryana are among those with dues.
HANGING FIRE
Consensus
Exemption list: Common list for Centre & states; Centre to exempt 12 VAT exempted items
Compounding scheme: Traders with turnover below Rs 1 crore likely to pay only 0.5% tax
Inter-state trade: As in present regime all such traders to pay tax as no threshold prescribed
No consensus
Dual control: Traders with turnover below Rs 1.5 cr to be controlled only by states
Threshold: Some states said at Rs 25 lakh threshold most of their traders will go out of GST
Revenue-neutral rate: Not decided as the tax base is not known; NIPFP to work out RNR
At the Empowered Committee (EC) of State Finance Ministers’ meeting here, the central government agreed to prune its exemption list to align it with those of states. At present, 96 items are exempted by the states under the Value Added Tax (VAT), whereas the Centre exempts 240 goods from levy of excise duty. The common items exempted by both are 84 and the Centre has agreed to exempt the remaining 12 items, too.
"The list will be common for services, too, and the Centre will revisit its Negative List under GST,” EC Chairman Sushil Modi (also Bihar’s finance minister) told reporters, adding a broad consensus had been reached on 80 per cent of the issues. However, asked whether the current government was committed to rolling out GST soon, he said, “This is an election year. So, you don’t know to what extent the government can take a decision in this regard.”
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The EC was deliberating on recommendations of three sub-committees formed in January, on RNR, inter-state movement of goods, and dual control, threshold and exemption.
The states could not decide on RNR as the tax base is not known yet and the Centre has not worked out how much each state would get from service tax. The sub-committee suggested a narrow band above the floor rate be allowed only at the standard rate and not at the merit rate. It also proposed two rates for services. The National Institute of Public Finance & Policy has been asked to work out RNR and give a report in a month.
There was a broad consensus that the threshold may be kept at Rs 25 lakh. However, as some small states such as Himachal Pradesh, Uttarakhand and some in the northeast voiced concern that most of their traders would escape the tax at that limit, no final decision could be taken.
Currently, the threshold for VAT is Rs 5 lakh in most states, while it is Rs 1.5 crore for excise duty. If it is kept at Rs 25 lakh, 65 per cent of traders, who pay only three per cent of the total tax, will go out of GST, reducing a lot of administrative work for tax authorities.
The sub-committee suggested traders with annual turnover of less than Rs 1.5 crore should come under the administrative control of states, while those above this limit should be controlled by both the Centre and the states. There was no complete agreement on it.
However, there is uniformity among the states that traders with a turnover of less than Rs 1 crore be allowed to benefit from the composition scheme. A dealer can opt for a compounded levy of 0.5 per cent on taxable turnover, instead of paying GST at the standard rate; however, he will lose the right to claim tax credit. Though the sub-committee had proposed the threshold for this scheme at Rs 60 lakh, states suggested the limit be increased in view of the new limit of Rs 1 crore prescribed for income tax in the Budget.
For inter-state movement of goods, the committee suggested a new model called Compensatory VAT, as the states felt the earlier model had some minuses. No threshold has been proposed for inter-state movement of goods. This means anybody moving goods from one state to another would have to pay the tax.
Modi also said the states were upset that the Centre was not moving rapidly on clearing their dues for losses made due to reduction in the central sales tax rate, in anticipation of GST. The Centre had agreed to give compensation of Rs 34,000 crore but its annual Budget provided for only Rs 9,000 crore. Gujarat, Punjab, and Haryana are among those with dues.
HANGING FIRE
Consensus
Exemption list: Common list for Centre & states; Centre to exempt 12 VAT exempted items
Compounding scheme: Traders with turnover below Rs 1 crore likely to pay only 0.5% tax
Inter-state trade: As in present regime all such traders to pay tax as no threshold prescribed
No consensus
Dual control: Traders with turnover below Rs 1.5 cr to be controlled only by states
Threshold: Some states said at Rs 25 lakh threshold most of their traders will go out of GST
Revenue-neutral rate: Not decided as the tax base is not known; NIPFP to work out RNR