GST Council keeps dual control for next time

Union Finance Minister Arun Jaitley with Revenue Secretary Hasmukh Adhia addressing a press conference in New Delhi
The tricky issues of division of administrative turf over assessees between the Centre and states — which can make or break the roll-out of the goods and services tax (GST) on April 1 — was not taken up by the GST Council during its two-day meeting that ended Friday. All other provisions of the draft model GST Bill and compensation Bill were cleared.

The next meeting of the Council, on January 3 and 4, will try to resolve the issue of dividing the administrative powers between the Centre and states, but signals given by state governments on Friday suggest that it would be a difficult task. 

The meeting will also take up the Integrated GST (IGST) Bill.

“That leaves us with the very important work of IGST law and cross-empowerment,” Union Finance Minister Arun Jaitley told reporters after the meeting on Friday.

A state finance minister said states were clear there should be no dual control over assessees with up to Rs 1.5 crore annual turnover. This means that states want sole control till this limit, and share powers with the Centre over this threshold. 

On the other hand, the Centre has been pushing for a cross-empowerment model of randomly choosing and dividing five per cent of the assessees between itself and the states, using a computer programme. 

The division of administrative turf involves another issue — whether or not states can have control over assessees having inter-state businesses. This comes under the IGST Bill and the Centre is empowered to collect IGST and distribute it among states. 

The issue of IGST also involves the territorial limits of states. This could also turn out to be a vexed issue, if not resolved quickly.

“Definition of the territory of a state itself is a matter of Constitutional interpretation. We will have to discuss it and reach a decision,” Jaitley said.

The Centre also wants to take 12 nautical miles beyond coasts as Union territory and tax any item sold there. Coastal states are averse to this.  If these issues are resolved even in the next meeting, the Bills could come up in the Budget session of Parliament. 

When asked whether or not the GST could be rolled out from April 1, 2017, Jaitley said, “Well, I am trying my best to do that. I don’t want to hasten the process of discussion. I don’t want to delay the process of implementation. Left to myself, I would like to (implement it from April 1).”

However, the FM indicated that there would not be voting to resolve the contentious issues; these would be settled through consensus. “It would be resolved through a deliberative way. The GST Council meets for a full day. There is discussion for hours on a single subject. There is a high standard of debate. We get alternative suggestions. We accept the best solution after listening to all proposals. We have not decided any issue through a vote or by a give-and-take policy,” he said.

To a query that industry wants more time to prepare for GST, Jaitley said, “That we will decide once we cross all bridges. I am not going to bind myself with anything. Our effort is to do it as quickly as possible. And I think we are making a reasonable headway.”

The Council approved the draft model GST Bill, except for provisions relating to administrative turf. It will be drafted in legally vetted language. 

It also decided to provide full compensation to states every two months for first five years of the GST roll-out. There are expectations that the total compensation would amount to Rs 50,000 crore a year, but Jaitley said there was no cap on the amount. 

"If there are high deposits in banks and we got higher tax receipts after demonetisation, will it be linked to GST?" Jaitley wondered.   

The next meeting would also discuss the states proposals for the union Budget of 2017-18.

As the ruling party and the opposition had bitter exchanges over demonetisation, a question was asked whether there would be political hurdles in the way of GST. The finance minister said: "We are living in the real world and politics is a part of the real world. At the end of the day, one has to assume that elected representatives of the Centre and states have a sense of responsibilities. So far, despite initial divergence of views, it all ends with convergence." 


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