In a significant breakthrough in implementation of India’s biggest tax reform, the deadlock over administration of GST ended on Monday after the Centre agreed to allow states control over most of small taxpayers, but the rollout date was pushed back by 3 months to July 1.
The split of GST taxpayers between the two will be done horizontally with states getting to administer and control 90 per cent of the asseesses below Rs 1.5 crore annual turnover, and the remaining 10 per cent coming under the Centre.
The Centre and states will share control of assessees with annual turnover of over Rs 1.5 crore in 50:50 ratio even as Finance Minister Arun Jaitley insisted that each tax payer will be assessed only once and by only one authority.
Besides ceding control, the Centre also agreed to the demand of coastal states, allowing them to tax economic activity in 12 nautical miles even though constitutionally the Centre has jurisdiction over territorial waters.
“This is a significant headway,” Jaitley said after the meeting.
While a four-rate tax slab of 5, 12, 18 and 28 per cent had already been reached, a consensus on the administration of the Goods and Services Tax – which will subsume central and state levies like excise duty, service tax and VAT – paved the way for finalisation of the draft supporting laws.
Jaitley said the draft of Integrated GST or IGST, the tax which will be levied by the Centre on inter-state movement of goods and services, as well as SGST and CGST will be finalised in the next meeting of the GST Council on February 18.
Once approved, the Council will then decide on taxing various goods and services in different tax slabs, he said.
The stalemate over administration of GST had been holding up consensus in the GST Council since early November with four successive meetings failing to break the deadlock as the Centre was not in favour of a horizontal split. It said states did not have the expertise to administer levies like service tax.
The Centre also did not favour dual agencies auditing and scrutinising each taxpayer as multiple authorities could end up acting at cross-purposes.
Since GST is a transactional tax, which is to be levied when a sale takes place, it does not necessarily have to be implemented from the beginning of the fiscal, he said.
The penal arrest provisions, which were part of the draft law, have been diluted. Officials said default in payment of taxes amounting up to Rs 2 crore will be a bailable offence.
The arrest powers will be invoked only in cases of criminal offences like forgery and collected tax not deposited in government coffers.
Briefing reporters after the 9th meeting of the GST Council, Jaitley said the entire taxation base will be shared between the Centre and states.
He said: “All assessees with GST turnover of Rs 1.5 crore or less, 90 per cent of them will be assessed for the purposes of scrutiny and audit by the states and 10 per cent by the centre.
“Those above the turnover of Rs 1.5 crore would be assessed in the ratio of 50:50 between centre and states,” he said, adding that intelligence based enforcement powers would vest in both Centre and states.
“The power to levy and collect the IGST taxation is with the central government but by special provision in law, the states will also be cross empowered in the same manner.” In case of contentious issues and conflicts between states with regard to place of supply, the assessment would be done by Centre, he said.
Also, importantly, the area of 12 nautical miles into the territorial waters, which is part of the Union government territory, will be taxed by states.
This is one of the issues which states with various parties in power – from BJP-rule Gujarat to Congress-ruled Karnataka and CPM-governed Kerala, had demanded.
“This decision has been taken after very wide consultation,” Jaitley said.
The Finance Minister said each assessee would be assessed only by one authority. “Once you evolve numerically a lot more will come from state to the centre, because the percentage is 50:50 in higher category and 90:10 in lower category. The computer programming would be done in a manner so that there is no discretion.”
After drafts of supporting legislations are prepared, fitments of rates in various slabs will be undertaken.
“This exercise will in all probability take us into the month of March. The Ministers and Council then assessed the realistic date by when the three important things pending — final draft legislation and rules, secondly approval of these by the legislative bodies, and fitments of rates can take place.
“I requested the ministers to give their opinion about the realistic dates and there was a broad view that July 1 appears to be more realistic,” he said.
Also, industry and trade should be given some adequate notice to prepare for the new regime and once the rates are decided the systems of GSTN will have to be modified suitably.
“So our next meeting will be on February 18. This long gap is because — the drafts are going to take some time to be finalised and most finance ministers would be busy with the central and state budgets,” Jaitley said.
He added that all states, except West Bengal, agreed to the proposal of division of assessees in GST for audit and scrutiny purposes.
“The West Bengal minister disagreed to the limited extent that assessments below Rs 1.5 crore which are divided 90:10 between the states and centre. His dissent was confined to the issue that it should be 100 versus zero and not 90:10. On all other proposals he also agreed,” he said.
After the Council meeting West Bengal Finance Minister Amit Mitra said the Centre has come very close to the position that empowered committee had taken, where below Rs 1.5 crores, turnover all goods, all deemed goods, was to be assessed by states.
“Our great struggle has been to save the small enterprises of states and we have succeeded to the extent of 90 per cent (of services) and all goods. We could not succeed in only 10 per cent which relates to services,” Mitra said.
Earlier, Kerala Finance Minister T M Thomas Isaac said there was no agreement on the issue of administration of GST, with states continuing to seek sole control over tax payers.
With regard to Integrated GST, Jaitley said the power to levy and collect the IGST taxation is with the central government but by special provision in law, states will also be cross empowered in the same manner of the ratio mentioned earlier.
“In the exercise of IGST where there are contentious issues between conflicting states with regard to place of supply etc. Obviously, one of the states cannot assess and therefore those assessment would take place by Centre,” Jaitley said.