 "Centre, states look to iron out differences at GST meeting")
“We’re hopeful of a consensus on the two issues on agenda during the two-day meeting. All states seem to be in favour of the four-slab rate structure proposed by the Centre, barring West Bengal and Kerala. All states understand the logic,” said a government official who did not wish to be named.
The Centre has proposed four slabs for GST — six per cent, 12 per cent, 18 per cent, and 26 per cent. It has suggested a separate cess on ultra-luxuries and demerit items in the 26 per cent slab to compensate states. It has also proposed that Rs 26,000 crore from clean environment cess will go towards compensating states, taking collections by way of cess to Rs 50,000 crore. The Council is chaired by Finance Minister Arun Jaitley, with state finance ministers or their representatives as members.
On the issue of ‘dual control’, the Centre will likely propose a division of powers based on audit and scrutiny of assesses. The proposal will offer greater assesses to states to carry out auditing and scrutiny compared to the Centre. “We can have a clear distinction to carry out audit and scrutiny of assessees. We’re willing to carry out a lot less intervention than states. But, there will be ‘cross-empowerment’ right from the beginning and will do away with the thresholds,” said another official.
The states were pushing for the exclusive administrative control of up to Rs 1.5 crore annual turnover threshold and dual control over that in case of both goods and services.
The ‘cross-empowerment’ model will ensure that a taxpayer will have to deal with one authority for all taxes to protect them from harassment. Under the framework, both Centre and states will have administrative control over assessment, scrutiny and audit for the central GST (CGST) and state GST (SGST). Whoever strikes first will carry out the assessment for CGST, SGST and integrated GST.
Kerala and West Bengal continue to show stiff resistance to the Centre’s proposals. The two states had opposed to a cess on GST at the Council meeting on October 18. Kerala has pressed for a GST slab of 40 per cent instead of a cess on the highest GST slab of 26 per cent on ultra-luxury items.
“We have issues regarding rates and also the role of states on administering the GST. We are highlighting certain issues that will affect the states and also the common man. However, we’re hopeful that this will be resolved in the next couple of days. We want to increase the top rate of 26 per cent to above 30 per cent,” a senior official in Kerala’s finance ministry told Business Standard ahead of the Council meeting on condition of anonymity. “We are also not in favour of imposition of cess on luxury goods to fund compensation to the states,” the official added. Other contentious issues pertain to administrative control of 1.1 million service tax assessees.
The Centre is learnt to have turned down the idea on the grounds that tax revenue will need to be shared with the states, while cess would be entirely dedicated towards the purpose of compensating states. Besides, of the 50 per cent that the Centre will get, 42 per cent will go to states as devolution, which will stretch its revenues. “So, out of every Rs 100 collected in GST, only 29 per cent remains with the Centre. The tax impact of this levy would be exorbitantly high and almost unbearable,” Jaitley had said last week.
West Bengal asked for a hike in direct taxes to compensate states. The Centre said it would not like to burden taxpayers to compensate states. West Bengal finance minister Amit Mitra a letter to Arun Jaitley is reported to have accused the Centre of hiding facts pertaining to service tax assesses. Mitra said the number of service taxpayers stood at three million. According to Mitra, this has “unfairly influenced the discussions, especially on the sharing of administrative powers between the Centre and states”.
A senior government official in the finance ministry clarified that while the service tax base is 2.6 million, the three million figure includes those who pay zero tax. Besides, it also filtered out those who did not file returns and the new taxpayers to arrive at the 1.1 million figure.
In the first GST Council meeting, it was broadly agreed that states will have exclusive control for up to Rs 1.5 crore for goods, while 1.1 million service tax assesses would continue to be assessed by the Centre till states acquire the necessary training and skills to handle service tax cases. However, this understanding fell through in the subsequent meeting as states also wanted control over service tax cases.
Industry bodies favour a simplified GST structure. The Confederation of Indian Industry is of the opinion that cess should be levied only at the final product and that the total tax, including cess, on demerit goods should be kept within the present overall indirect tax incidence. “As we are in a transition period, several industry sectors are faced with the challenges of adapting to new tax regime. While the GST is a path-breaking reform, its implementation should be calibrated in a manner to cause the least disturbance to the existing taxation structure,” said D S Rawat, secretary-general, Assocham.