State finance ministers today failed to iron out certain minor differences over the proposed Goods and Services Tax (GST), days before start of a crucial session of Parliament that has to pass a law for the new regime to come into force from April next year.
The Empowered Committee of State Finance Ministers did not discuss the GST rate but referred to a sub-committee the issue of threshold below which small businesses would be exempted from the new levy.
Delhi Deputy Chief Minister Manish Sisodia, who chaired today's meeting, said the states were "divided" over the threshold.
While the Centre is of the view that threshold for levying central GST (C-GST) and state GST (S-GST) be kept at an annual turnover of Rs 25 lakh, some small states want it to be at Rs 10 lakh.
"Some states are adamant that it should be Rs 10 lakh. Some others said it should be increased because inspector raj will increase if small traders come under GST... So, we thought that we should collect data from all states," Sisodia said.
The GST Bill, which will subsume all indirect taxes to create one rate and integrate the country into a single market, has been approved by the Lok Sabha and is pending approval of the Rajya Sabha.
After the Constitutional Amendment Bill is approved by the Rajya Sabha, the Bill needs approval of half of the state legislatures before it can become a law.
The government is hoping to get the bill approved in the winter session beginning on November 26 and complete the other necessary legislative work by March 31.
Sisodia said the Empowered Committee of State Finance Ministers will meet next month to decide on a new chairman.
"The Empowered Committee will in its next meeting in the presence of Finance Minister Arun Jaitley decide on the chairman... The meeting should happen in December," he told reporters here.
Selection of a new chairman has been necessitated by the incumbent Kerala Finance Minister K M Mani's resignation earlier this month in the wake of a High Court ruling against him in the bar bribery case.
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The states have two options -- either raise the number of tax payers or decrease the number and levy higher tax, Sisodia said.
"Based on data, a decision would be taken so that it should not be on the basis of prejudice. The sub-committee would submit its report before the next meeting," he added.
Although the government had planned to roll out GST, which is billed as the most comprehensive indirect tax reform since the Independence, from April 1, 2016, it looks difficult as the Constitution Amendment Bill is stuck in the Rajya Sabha where the ruling NDA does not have a majority.
With the winter session of Parliament beginning November 26, the NDA has to work out a strategy to seek the Congress' support for passage of the legislation.
The Empowered Committee was in Australia recently, Sisodia said, and the learning from there was to make GST simple and important for effective implementation.
He also said Delhi is comfortable with GST rate at 25 per cent.
At present, the estimated total indirect taxpayer base,
including value-added tax, service tax and excise, is around 10 million, of which around 0.4 million are common to the Centre and the states.
This leaves around 9.6 million taxpayers, of which around 6.6 million are value-added tax assessees, 2.6 million are active service tax assessees and around 0.4 million registered under excise.
Under the new system, the states and the Centre will collect identical rates of taxes on goods and services. For instance, if 18 percent is the GST rate on a good across the country, the states and the Centre will get 9 percent each, called the CGST and SGST rates.
The Centre will also levy and collect the Integrated Goods and Services Tax (IGST) on all inter-state supply of goods and services.
The IGST mechanism has been designed to ensure seamless flow of input tax credit from one state to another.
The dual control issue, which was deadlocked in the third and fourth GST Council meetings, has risen because multiple taxes levied by the Centre and the states at present will now be integrated into one tax under the GST regime, which is aimed at removing inter-state barriers to trade and integrating India into one common market.
The next GST Council meeting on November 25 will work to finalise four supplementary bills dealing with CGST, SGST, IGST and the compensation law.
At its last meeting, the Council agreed on a four-slab structure - 5, 12, 18 and 28 per cent - along with a cess on luxury and 'sin' goods such as tobacco.
