April 1 deadline won't be met? GST stuck with compensation, dual control

Business Standard By Dilasha Seth & Indivjal Dhasmana January 4, 2017. 09:30 IST

States are also digging in their heels to ask for more compensation, as they are hit by note ban

Union Finance Minister Arun Jaitley (left) with Puducherry Chief Minister V Narayanasamy (centre) and MoS for Finance, Santosh Kumar Gangwar at the GST Council meet in New Delhi.

The goods and services tax (GST) Council will take up the tricky issue of division of administrative turf between the Centre and states in the proposed indirect taxation system on Wednesday, even as many states signalled sticking to their stance of having a control over small dealers.

The states are also digging in their heels to ask for more compensation, as they are hit by demonetisation, clearly giving signals that the April 1 deadline is likely to be missed.

However, some Bharatiya Janata Party-ruled states did not rule out the possibility of meeting the deadline, though it would be quite difficult even if the GST Bills are tabled in the Budget session, likely from January 31.

At GST meeting on Tuesday, Commerce and Industry Minister Nirmala Sitharaman made a presentation to the Council, urging for low rate of taxation for special economic zones, plantation crops as well as leather and cement sectors.

Representatives of aviation sector demanded not more than 9% GST rate on airfare. Of the rates approved by the GST Council, only 5% would suit their demand that way.

The Council took up the integrated GST (IGST) Bill and almost cleared it. The issue of dual control cannot be taken up unless there is clarity on IGST Bill.

There is an issue in IGST – whether the states can share the administrative power on assessees involved in interstate movement of goods and services – which is yet to be settled.

“States also want a share in IGST,” Kerala Finance Minister Thomas Isaac said. He said states stick to their demand of controlling assessees with annual turnover of Rs 1.5 crore.

The issue of dual control over a single assessee has been hanging in the balance for long.

Against the demand of states, the Centre has proposed to have control of both the Centre and states over assessees with a predetermined ratio.

The issue of dual control will be discussed on Wednesday. Haryana Finance Minister Captain Abhimanyu told reporters that if the issue is resolved, only procedural formalities will be left to be ironed out.

Delhi Deputy Chief Minister and Finance Minister Manish Sisodia said it’s difficult to meet the April 1 deadline for GST.

Isaac saw June or July as the probable months of rolling out GST.

However, Abhimanyu said April 1 still remains a possibility for introducing GST though it will be tenuous.

Besides administrative control, the sum of compensation is becoming a prickly issue.

West Bengal Finance Minister Amit Mitra demanded a higher sum than the expected Rs 55,000 crore a year, as state finances faced repercussions from the cash crunch after demonetisation.

“We took a major risk with GST for the sake of country, despite it being a big hit on states revenues. Demonetisation has been a double whammy. West Bengal’s growth in taxes grew by 11% for December last year, against a 2% contraction this year in December. There has been a 30-40% fall in tax collections in general,” he said.

Union Finance Minister Arun Jaitley had said that there would be no cap on the compensation amount, although he sought to distinguish between the one that sought under GST and the one being demanded due to demonetisation.

The definition of coastal states under GST is also becoming a vexed issue.

Andhra Pradesh Finance Minister Yanamala Ramakrishnudu said the definition of territorial waters by the Centre was not acceptable to the states.

The Centre wants to take 12 nautical miles beyond coasts as Union Territory and tax any item sold there. Coastal states are averse to this.

State finance ministers are likely to discuss their demands on the Union Budget with Jaitley on January 4.

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