In a significant breakthrough in the implementation of India’s biggest tax reform, the deadlock over the administration of GST ended on January 16, 2017, 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 crores annual turnover, and the remaining 10 per cent coming under the Centre. The Centre and states will share control of assesses with annual turnover of over Rs 1.5 crores in a 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. 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 the 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, 2017. Once approved, the Council will then decide on taxing various goods and services in different tax slabs, he said.
The stalemate over the administration of the GST had been holding up consensus in the GST Council since early November 2016, 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.
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With the legislative calendar drawn up, Jaitley said a ‘realistic’ date for the implementation of the GST will be July 1, 2017 instead of the previously planned April 1, 2017. Since the 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. 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 a GST turnover of Rs 1.5 crores 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 crores 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, the Centre and the 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” he said. In case of contentious issues and conflicts between states with regard to place of supply, the assessment would be done by the Centre, he added.
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” he said. The Ministers and Council then assessed the realistic date by when the three important things pending – the final draft legislation and rules, secondly approval of these by the legislative bodies, and fitments of rates can take place.
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