GST Council meet: Dual control a non-issue as Center eyes post-demonetisation solution
The Financial Express
By Santosh Tiwari
December 21, 2016 6:23 AM
While the demonetisation of the old R500 and R1,000 notes appears to have derailed the implementation of the Goods and Services Tax (GST) completely from April 1, 2017, the central government is still hopeful of resolving the tricky dual control issue in the GST Council meeting slated for Thursday and Friday.
Former chairman of the Central Board of Excise and Customs, Sumit Dutt Majumder. (Shyam)
While the demonetisation of the old R500 and R1,000 notes appears to have derailed the implementation of the Goods and Services Tax (GST) completely from April 1, 2017, the central government is still hopeful of resolving the tricky dual control issue in the GST Council meeting slated for Thursday and Friday. The Centre and the states agreeing to a workable administrative framework will be key to any chance of GST coming into force before September 16, as required under the constitutional amendment. Former chairman of the Central Board of Excise and Customs, Sumit Dutt Majumder, in an email interview with Santosh Tiwari, explained the ground realities and expressed confidence that the integrated indirect tax structure will become a reality soon. Edited excerpts:
Though there is an agreement on rates now, the states and the Centre have failed to find a way out on the dual control under the Goods and Services Tax (GST). What is the root cause of the issue?
In order to understand the dynamics behind dual control, first, we have to understand that in most of the federal democracies, it’s the central or national GST model. In such a system, the Centre collects GST/VAT (same thing—only different nomenclatures) for both the Centre as well as the states/provinces, and thereafter the states’ shares of the GST is distributed according to the consumption index of individual states, this because GST is a destination-based consumption tax.
For this purpose, a consumption survey of all the states is undertaken before deciding on the percentage share of taxes of each of the states. But, India has decided, in the interest of cooperative federalism, to go for a dual-GST model where both the Centre and the states will levy and collect GST—the Centre will collect the central GST (CGST) and the states will collect the state GST (SGST). Thus, the fiscal autonomy of the states will be retained. Further, with this arrangement, the multiple control by agencies (varying between eight to 10) collecting indirect taxes like central excise, service tax, state VAT, entry tax, luxury tax, etc, will be replaced by dual control of the CGST authority of the Centre and the SGST authority of the individual states.
The states have demanded exclusive control over both the CGST and the SGST with respect to all the goods and services below the threshold of R1.5 crore—meaning thereby that the Centre won’t have any jurisdiction to collect CGST below the aforementioned threshold. This would be ultra vires the constitutional provision, after the recent amendment whereby, the Centre has been empowered to collect CGST and IGST (for inter-state transactions). Without further amendment to the Constitution, the centre can not be disempowered as demanded by the states. Same is the position with the Centre’s constitutional obligations to levy and collect IGST.
The main issue, obviously, is who will gain how much control over the taxpayer base of VAT, excise and service tax. What could be the way out?
On the subject of ‘control’, one needs to understand that administration of GST would be technology supported through the GST Net and interlinking networks of the Centre and the states. In such a scenario, for cases where there are no allegations of violation of law and rules—that is where the transactions are clean—there would be no ‘physical’ or non-technology based control by any tax administration. The taxpayers won’t even see the face of the taxmen.
The states do not want small traders with a revenue threshold of less than R1.5 crore to be under the Centre’s control. They are demanding an exclusive control for both goods and service tax assessees of R1.5 crore and below. The Centre is agreeable on goods, but is not yielding on services. How can this be resolved?
My view is that a minimum of 90% cases will fall into this category. So, where is the problem with ‘dual control’? The issue of dual control will be relevant only for those 10% cases where there are allegations of violation. And, that can be well-coordinated between the Centre and the states. It’s only because of excellent cooperation and coordination between the officers of the Centre and the states that we have reached so far. This shouldn’t be allowed to be politicised, and this is what is getting the GST delayed.
The Centre prefers to have a vertical split of all dealers for assessment under GST. Other solution could be a horizontal split, but both have their own problems. How to deal with this?
Although there are vertical and horizontal split options before the Centre, neither vertical split nor a horizontal split is going to solve the problem. It will only complicate the issue of jurisdiction, and instead of concentrating on administering GST, the resources and energy will be wasted on irrelevant issues of jurisdiction.
The taxpayers’ numbers will obviously change once GST is implemented. Is there a possibility of retaining integrated control?
With regards to utilisation of manpower, there has to be something like reworking of ERP (Enterprise Resource Planning) in the central and states GST administrations. It must be realised that ERP evaluation is not meant for private sector alone. Emphasis has to be placed in employing the manpower more in audit and enforcement (anti-evasion). It’s only a minuscule percentage of delinquents in the trade and industry which bring distortion in the system. The manpower of both the Centre and the states would be needed for that—audit and anti-evasion. So, I don’t buy the theory of ‘Turf War’. My understanding is that the bureaucracy, much maligned as it is, has no problem with dual-control GST. Even the trade has not made any big noise about it. So, let us wait for some time. Let the tempers that have been hot for non-GST reasons, cool down. GST would benefit all the consumption states, including the states which are agitating the most on dual control issue.
Do you still see a possibility of GST getting implemented before September 16?
There may be doubts on implementation, but I believe GST will be implemented much before September 16, 2017, as all made up disputes on jurisdiction will get sorted out soon. The provisions of the just amended Article 246A, read with Article 269A, of the Constitution are very clear. CGST and SGST will be levied and collected by both the Centre and the states. So, there is scope for cross-empowerment of the Centre and the states in this regard. But there can not be disempowerment of either the Centre or the states. The Constitution does not authorise so. Therefore, exclusive control of the states over CGST and SGST below the threshold of R1.5 crores, thus disempowering the Centre, will be ultra vires the Constitution.
On IGST taxation, of inter-state transactions, the Article 269A is clear. IGST can be levied and collected by the Centre alone. There is no provision for assigning the job of collection to the states by the Centre, as was done in the case of Central Sales Tax (CST). As also on cross- empowerment of IGST, the law ministry has also opined that the power of levy and collection of IGST by the Centre, as authorised by the Constitution, cannot be shared with the states.
Even the provisions of Article 258 of the Constitution, which empowers the Centre to ask the states to perform some of Centre’s functions, cannot be applied in the circumstances of the present case of GST empowerment.
Thus, GST in its present form is inevitable. The question is—when? The Constitution Amendment notification dated September 16, 2016, stipulates that GST will have to be implemented within one year inasmuch as all taxation authorities that will be subsumed in GST, will cease to exist after one year, from September 16, 2016.
No government can flourish without taxes. Therefore, GST will have to be implemented before September 16. I would like to peg the target on July 1, 2017.
The industry still appears unprepared. Do you think it’s good that GST is getting delayed?
Of course, it’s good that the target has been moved to a later date. Not only that all the Commissionaretes are not prepared, even the trade and industries are not fully prepared. It’s essential that the finalised law and rules are put in public domain soon. It’s only then that the taxpayers can have their ERPs reviewed, and the software customised with the requirements of GSTNet. Therefore I will put July 1, 2017, as the date for implementation of GST.