Industry today pitched for 18 per cent GST rate, saying it would generate adequate tax buoyancy without fuelling inflation and also demanded relaxation in the penal provisions.
In their interaction with the state finance ministers, industry chambers also said it is difficult for them to meet the April 1, 2017, deadline for rollout of GST as they need sufficient time to put in place the IT infrastructure.
"We believe a maximum rate of 18 per cent as standard rate will be revenue neutral and ensure adequate tax buoyancy. Also the centre has agreed for full 5-year compensation for revenue loss to states, so 18 per cent rate will be more than adequate," CII President Naushad Forbes said.
Ficci on its part suggested that the "standard rate" should be reasonable and be such that it checks inflation, and tendency to evasion and ensures compliance.
"Goods fully exempted from the levy of excise duty and VAT by all the states should be categorised as exempted goods in the GST regime as well," it said.
As regards preparedness for roll out of the new indirect tax regime, Forbes said CII is committed to April 1, deadline and committed to doing everything we can to ensure we stick to the deadline.
"If we work towards that deadline and if have clarity on some of the provisions as early as possible, we can ensure that our own IT systems are put in place quickly so that we can go live as early as possible," Forbes said.
The government is planning to roll out the new indirect tax regime from April 1. GST will subsume excise and service tax and local levies, including VAT and octroi.
Assocham on its part demanded relaxation from the penal and prosecution provisions during the first two years of GST roll out, except in case of tax fraud or non-deposit of collected taxes.
They also demanded that the Centre and states should set up mechanism to advice traders on legal provisions following roll out of GST.
Chairman of the Empowered Committee of state finance ministers and West Bengal Finance Minister Amit Mitra assured traders and industry chambers that their concerns would be looked into.
He asked the industry to give suggestions on the quantum of penalty and said the empowered committee and the GST Council will look at the arrest and prosecution provision.
Industry chambers also demanded single centralised registration of suppliers of services who operate in different states, in place of multiple state wise registrations for specific service sectors.
"The states recognised very much that certain telecom services come under central scheme. Under the current draft, you would need to register in each state which would make it very very cumbersome. And states were very receptive to the idea that one needs a simple, single registration. Because that wont affect revenue, it will only make a simpler and more transparent regime," Forbes said.
Discussions on service tax assessment and the formula for
calculating compensation to be paid to states in case of revenue shortfall as a result of implementation of the GST regime, possibly from April 1, 2017, would be taken up at the next meeting on October 18-20.
It will also decide on the all important GST rate, Jaitley said, adding that the government is targeting November 22 for completing major work on deciding tax rate, exemptions and draft legislation by the Council.
There were two items regarding draft GST rules on agenda of today's GST Council meeting, he said.
"Now these rules are with regard to registration, rules for payments, return, refund and invoices. These rules are notified once the Act is passed... These 5 sets of rules were taken up for consideration and have been approved. So we are in a state of readiness with the subordinate legislation once the act itself is approved," he said.
The rules approved will form part of the supporting legislations needed to rollout GST. "So once the act is passed by Parliament or by the state legislatures as the case may be, we want the draft rules to be ready so that the rules can be notified immediately," he said.
Stating that the second item on agenda was treatment of existing tax incentives by the Centre, he said, has given some exemptions from excise duty to 11 North-East and hill states.
Similarly, states too give out a series of incentives.
"It is possible that some of the exemptions may get phased out. But for the exemptions which may remain how will these exemptions fit into the GST system. So the Council took up for discussion the management of these exemptions. And it was agreed that there would be a levy of tax under the GST system on all exempted entities.
"Once the tax is levied, the central govt or state government, which gets that tax, would then reimburse from the budget, that quantum of tax back to exempted entity," he said.
Under the GST system, everybody will have to pay tax but those exempted would be entitled to be reimbursed the levy they pay.
On the issue of service tax assessment, he said the central government's understanding is that an arrangement as been finalised for continuing with the existing system and transferring it to states when their officers are trained.
On services that are taxed partly by the Centre and partly by states, he said experts will examine and report it in next meeting for a final decision.
Asked if tax exemptions would be grandfathered, Jaitley
said: "It is not necessary to grandfather everything but if you do grandfather it then the process of payment of tax and reimbursement, it will be like a direct benefit cash being returned. Today, we discussed the principle by which exemptions would be dealt with."
There will be a levy under the GST tax on exempted entities, he said.
"Once the tax is levied, the central government or the state government which gets that tax would then reimburse from the Budget that quantum of tax to the exempted entity.
"So you will have the GST system in operation where everybody has to pay the tax but if you are an exempted entity and the state or Centre decides to continue that exempted entity then they would be entitled to that amount being given back to them," he said, adding that the details in each case will be worked out.
Which exempted entities will remain or not will be decided by states and the Centre, he said, adding that states would have to decide on exempted entities as they will reimburse tax to them.
Jaitley said there were discussions on interpretation of service tax, division of authority between centre and states, but they were inconclusive.
"Now after this, two items remain. The rates would be the big item to discuss and then after we will go to draft rules of GST law," he added.
Explaining how the area-based exemptions would be doled out, Jaitley said the centre gives incentives to North Eastern states. But the tax that comes to the central kitty, 58 per cent belongs to Centre and 42 per cent is devolved to the states.
"Hence, we (Centre) will reimburse only 58 per cent. How the remaining 42 per cent will be reimbursed that arrangement has to be worked out. I can't get 58 per cent tax and reimburse 100 per cent," he said.
The 14th Finance Commission in its report has scaled up devolution to states from the central pool of taxes to 42 per cent from 32 per cent.
"We are trying to build every decision through consensus. And as far as possible there is no voting because in that way federal spirit is maintained. Wherever possible dissent should not arise and wherever there is dissent it should be taken up in next meeting," Jaitley said.
Asked how the supply contracts, where both goods and services components are there, would be taxed in the GST regime, Revenue Secretary Hasmukh Adhia said that has been referred to the officers committee.
"So the question is what happens to those kind of cases where there is both goods and services. Now it will become supply contracts. Now the officers committee will look into this and come back to GST Council," Adhia said.
