West Bengal will lose tax collection power if it misses date with GST

Business Standard By Avishek Rakshit June 2, 2017. 01:59 IST

Failing to clear laws by Sep 15 might land the debt-laden state in financial chaos

West Bengal might lose its authority to collect taxes if its Assembly fails to pass the relevant goods and services tax (GST) Bill by mid-September.

State Finance Minister Amit Mitra has expressed inability to introduce the GST, at least in its current form, in the state by July 1 — the targeted roll-out date for the indirect tax regime. If he is unable to get the Bill cleared by the state Assembly, West Bengal would have to chalk out some sort of settlement plan with the Centre.

A tax expert said, according to the 122nd Constitutional Amendment, taxes levied by the Centre (excise duty, service tax, customs duty) and by states (VAT, entry tax, purchase tax, luxury tax) will be abolished by September 15 this year. The amendment was passed by Parliament on September 16 last year. It also allows for an earlier roll-out of the GST.

“If West Bengal fails to pass the Bill by September 15, another Constitutional amendment will be needed for it to collect any tax,” an expert said. He added that this would severely affect the financial situation of the debt-laden state.

However, West Bengal would be able to collect taxes till September 15, even if the GST is rolled out on July 1.

In case the state works itself into such a mess, supply of goods to it would be hit, said an industry official.

“The problem will be over the integrated GST (IGST). Suppliers would send goods to dealers in the state, who, in turn, would have to pay the tax. Under the GST, they would be able to claim an input credit for IGST,” he said.

“As a result, smuggling from neighbouring states will increase. Through the legal route, dealers would have to pay an 18 per cent IGST but would be able to charge customers only the maximum retail price,” said an official.

Bipin Sapra, tax partner, EY, said in such a scenario, goods would be costlier because it would be subject to higher taxation. The crisis would be acute because West Bengal is a consuming state. On the other hand, its produce would also find few takers outside.

“It is, however, unlikely that West Bengal would continue under the VAT, while the country adopts the GST,” said the expert.

Tax consultants said the industry lobby was likely to convince the state government to adopt the tax within the deadline.

At the GST Council meeting on Saturday, Union Finance Minister Arun Jaitley — keen to announce the July 1 roll-out date — will take a call. West Bengal FM Mitra would attend the meeting, after missing the three previous ones, with a proposal for lower taxes for some goods.

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