GST Council meet starts today: Trust deficit between Centre, states widen; is April deadline a tall order?
With barely a fortnight left for Parliament’s Winter Session, the GST Council will begin its crucial two-day meeting on Thursday to decide on tax rate, including the levy of cess and sort out the vexed issue of jurisdiction over assessees.
The meeting also assumes significance as it comes at a time when an industry report has pointed out sharp anomalies in the taxation rates and structure across different industries such as telecom, tobacco, textiles, food processing and tourism.
“As we are in a transition period, several industry sectors are faced with challenges of adapting to new tax regime. While the GST is a path-breaking reform, its implementation should be calibrated in a manner to cause least disturbance to the existing taxation structure,” said DS Rawat, Secretary General of Associated Chambers of Commerce and Industry of India (Assocham) said.
The GST Council will have to address these anomalies in the forthcoming meeting, if not now.
Thursday’s meeting is to be chaired by Finance Minister Arun Jaitley.
Here are the key facts you need to know about the meeting:
The agenda: At the meeting, the Central government is likely to press its proposal for 4-tier tax structure of 8, 12, 18 and 26 percent.
Under the proposed 4-slab structure, the items which are currently taxed between 3-9 per cent will fall in the 6 percent bracket; those in 9-15 percent range will come under 12 percent rate. Those products which are currently taxed between 15-21 percent will attract 18 percent levy while those above 21 percent will be taxed at the peak rate of 26 percent.
The Centre has also proposed to levy additional cess on demerit goods like tobacco, aerated drinks and polluting items to create a Rs 50,000 crore fund to compensate the states for revenue loss. The proposal, which was discussed at the last meeting, could not be adopted by the Council because of opposition by some states.
The cess is also likely to be taken up in the meeting.
Another important issue to be discussed at the meeting is the dual control of service tax assessees.
Centre-states mistrust: On almost all the issues to be taken up at the meeting the central government and the states are headed for a collision course. The Centre is expected to have a tough task of building consensus with states.
On tax rate, some of the state governments, such as Kerala, are opposed to the cap at 26 percent, according to a media reports.
“The logic of reducing the tax incidence on consumer durables and demerit goods to 26% makes the GST severely regressive… The upper rate has been pegged at a lower rate so that the central government has the option to impose the cess as and when necessary,” Kerala finance minister Thomas Isaac has been quoted as saying in a report in The Financial Express.
The second contentious issue is the cess. Many state finance ministers have questioned the very rational of imposing a cess under the GST regime. Issac had earlier said such a move will defeat the purpose of bringing in the tax reform as such. States are opposed to cess as it is an item that is not shared with them.
As far as service tax is concerned, the Centre-state differences are wider.
At the last meeting, differences arose between the Centre and states on dual control, with states demanding control over 11 lakh service tax assessees and the Centre proposing to do away states having exclusive control over all dealers up to an annual revenue threshold of Rs 1.5 crore.
West Bengal Finance Minister Amit Mitra has said that the Centre has withheld information relating to the number of service tax assessees. He said while the Centre has disclosed 11 lakh tax payer, the actual number of service tax assessees is estimated at 30.5 lakh.
There is difference on even the priority of the issues to be taken up. Media reports say while the Centre wants to take up the rate structure first, the state governments want the service tax issue to be resolved first.
Most importantly, trust deficit seems to be widening between the states and the Centre.
“The centre has been trying to dictate its own terms. There is a feeling among states that the centre is not sharing information promptly with the states and neither is it trying to see the states’ viewpoint,” a report in the Mint quoted a source as saying.
What to expect: The Centre, nonetheless, exudes confidence that there will be a consensus and the deadline of 1 April 2017 is workable. Minister of State for Finance Arjun Ram Meghwal has termed differences over cess as “minor”.
“Our effort is to decide on all matters through consensus. We want everyone to come around on all issues… There may be times when Tamil Nadu or Kerala or West Bengal or Uttar Pradesh have said something different but we will get
them around. We are confident that the GST will be rollout from April
1, 2017…all issues would be sorted out before that,” he has been quoted as saying in the report.
The meeting beginning today is crucial as it will have to sort out the issues concerning tax rate to enable Parliament to approve the Central GST (CGST) and Integrated GST (IGST) legislations in the winter session beginning November 16. This is important to meet the 1 April 2017 roll-out deadline.
But given the major trust deficit between the states and the Centre, the meeting the deadline is likely to be a tough call.