 "Q&A with Tamil Nadu Minister K Pandiarajan on GST Council")
In the two day GST Council meeting, the tax rates were fixed for the upcoming Goods and Services Tax Regime and the rates were almost in line with what Tamil Nadu has asked for Tamil Nadu School Education and Sports & Youth Welfare Minister K Pandiarajan, the GST Council member from the State, spoke to T E Narasimhan & Gireesh Babu on the developments over the two days and where the discussions stand at. Edited excerpts:
How was the meeting for the two days?
Today was a little tough. Last two days overall was productive. They shared some of the real data relating to taxes. Yesterday’s decision on exempting food articles and the structure of rates, which was welcomed by everybody. They have shared quite a bit about how much is the tax payers in each of these areas and given the rate, what could be the inflation impact, all which we saw and finally took an inflation-neutral rate structure. The cess was also agreed to finally, though there was a discussion on the model. But finally they have agreed to a few things we asked, especially on constraining it to limited products and it will be in excess of the 28 per cent tax slab. For instance, for tobacco the taxes are around 65 per cent and the cess structure would be that the cess for tobacco would be 28 minus 65 per cent. The cess fund would be transferred to a special fund which will only be for the compensation to be payable for the States.
Today the key discussions were around the crops empowerment, to ensure single interface under the GST. There were about five options and at some point we pushed the government for some data, for instance, how much is the overall number of assesses. There are various levels of data which we needed to understand including how many are PAN linked, and all. Finally, we decided to meet again. Today the meeting was inconclusive.
What we set out to do was the collection method, who will collect, for what category of taxes. There are 93 lakh of assesses, in all the three key taxes – excise, VAT and sales tax. We dissected them into three parts, above Rs 1.5 crore, between Rs 20 lakh to Rs 1.5 lakh crore and how many are below Rs 20 lakh, to get an idea about the workload. The five options were narrowed down to three options. Almost all the states wanted to keep a horizontal division of Rs 1.5 crore, below which the States will completely handle the taxes. Above Rs 1.5 crore, there will be cross empowerment, based on evaluating the risk profile of each client in this category and get allocated to either centre or the state government, based on a formula.
There was no consensus yet. Lots of other questions also raised. Out of the 93 lakh assesses, they disclosed that if we do Rs 20 lakh threshold, then almost 58 per cent of the assesses vanish. But they are arguing that IGST needs registration will bring in even the smallest transaction under assessment. We believe that very large number of people who are sub Rs 20 lakh in a particular stage, will move beyond Rs 20 lakh if different taxes getting added. So the whole threshold got a little revisited. We are now working on the revenue which comes into these four categories. The meeting is again on November 20, before which the fitment of the Goods and services to the slab structure by a team of secretaries.
Are you satisfied with the decisions taken so far? Earlier, the State has raised issues related to the compensation. What is the current position?
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The key decisions are yet to happen. We would be happy if the Rs 1.5 crore horizontal division, for all the taxes, happen. I have a belief that they may not have a choice. There are many states asking for this. We are not getting isolated as it happened in Rajya Sabha. We are now well supported.
The rates are in the same line with what the State asked for. Are you happy with that?
The rates are fine, but the thresholds are getting relooked at. So I don’t think you should have a GST where half of it go away. They are yet to convince us that this will not shrink with this Rs 20 lakh threshold. The discussions were valuable, but we have to see the results to determine whether we are happy or not. More important than the rate is the collection, that who will collect what and which process will get owned. Will someone own only audit and enforcement or collection and scrutiny, those are the key questions being discussed. Those decisions will be taken only on November 20.
Do you think that the processes are hastened through? Is it a concern?
I am a believer that if you don’t implement things quickly, the chance of implementing it well will be really low. I think it is possible before April, though the Constitutional Amendment gives you time till September 22, 2017. There is no chances a few states accepting and going ahead while others don’t. It has to happen simultaneously. They are trying to do by April 1. It would be helpful if some of these data shared a little more earlier, faster and more transparently. Today is the 11th day of the GST Council meeting, fifth meeting of the council and there are certain times when we have done three days together.
But this is high quality top management time, with key ministers from the State and the Union Finance Minister fully spending time on it. I don’t think it is commensurate to the work we have put in. I believe we should have moved ahead further if they shared a lot of data earlier and a lot of things better, we can finish. We are trying to catch this Parliament session starting November. The law is parallelly getting drafted.
It is possible, though it is a little tight schedule. I don’t think the consensus can be compromised. There will be a faith issue, a trust deficit issue if we force a certain pace. We can always do it July 1st or later date, which will give a longer time. My belief is that consensus is possible.
What is the status of the broader points the State has raised earlier related to the implementation of GST?
Our demands were that the compensation to be there for five years without any intervention, by Parliament and that is decided positively. In terms of definition of revenue, overall it has gone as per what we wanted except the devolution getting added, which was one of the things we had to give up.We are happy with the growth rate for the revenue, which is being agreed at 14 per cent secular rate for everybody per annum and the reduction of tax slab from six per cent o five per cent. Getting the food article out of the taxation, has been our demand and it has been agreed to. Tamil Nadu is one of the few states where almost 700 odd food items have been exempted from taxation.
Our demand on the vehicle for compensation, which is the special fund and the cess has also been agreed upon and it gives us a clarity on the fund. It is roughly estimated around Around Rs 55,000 crore which would come into compensation every year. There is a general ambience of transparency, except in the aspect of what taxes and segments contribute how much to the kitty. They have committed that they will tomorrow or day after, send the data.
You have earlier said that the compensation to the State would be around Rs 9720 crore. Is it the same you are expecting after the meetings?
Not necessarily. That was calculated in the context that you are supposed to get a manufacturing tax and others.GST has taken a different shape now. I don't think we are shooting any longer for Rs 9,000 plus crore, and there are many things which have changed. I would imagine the amount could be a lot lesser. Compensation will depend on how much revenue you were getting earlier and how much less revenue you are likely to get in the new regime, which depends on the rate etc. The compensation comes down means your revenue has not fallen and that is a good sign. Even after assuming a 14 per cent growth, if your revenue has not fallen as much as you anticipated earlier, it is a good thing. The compensation will end at the end of five years and if you are too dependent on the compensation, then what will you do after fifth year. Our own strategy is to progressively wind down the compensation.