Centre and the states reached a consensus on the contentious dual control issue preparing ground for the rollout of the biggest tax reform from 1 July. The Centre would assess 50 percent of the assessees under Rs 1.5 crore annual turnover and the states the other 50 percent.
As much as 90 percent of the assessees with less than Rs 1.5 crore annual turnovers will come under the states and the balance 10 percent under the Centre. Above that limit, Centre and states will assess in a 50:50 ratio. The agreement hammered out was based on a proposal by Tamil Nadu.
According to finance minister Arun Jaitley the whole process of preparing the draft laws and deciding the rate slabs will need time until March, which makes 1 July rollout a more realistic deadline than earlier 1 April. Three crucial steps to be completed by March are finalising the draft legislation and rules, getting these approved by the legislative bodies and deciding the rate slabs.
Jaitley said all ministers present at Monday’s meeting agreed to the proposals except West Bengal finance minister Amit Mitra. The state wanted exclusive jurisdiction for states up to the limit of Rs 1.5 crore. Other states did not support West Bengal’s demand, said an official present at the meeting.
On the other hand, states such as Assam and Maharashtra demanded a higher number of assessees above the Rs 1.5 crore threshold and fewer below. The GST Council, which has Jaitley as chairman and state ministers as members, resolved to share the entire taxation base between the assessment machinery of the Centre and the states.
Jaitley said the power to levy and collect the I-GST lies with the central government but states will also be cross-empowered in the same ratio as above through a special provision in law. Any IGST disputes among states will be resolved by the Centre.
Regarded as one of India’s most sweeping reforms since Independence, GST will help turn the country into a common market by removing state tariffs that act as a barrier to free movement of goods and services. The accord will come as a relief to the Centre after concerns that the November 8 demonetisation may cause states to put up their price.
The Centre also ceded ground on taxation rights over the sea. Territorial waters extending to 12 nautical miles fall under control of the union government but as per convention, states will be empowered to collect tax on any economic activity in this zone. “This decision has been taken after very wide consultations,” Jaitley said.
The council decided on a new timeline for GST’s rollout factoring in three key pending matters — final draft legislation and rules, approval of these by legislative bodies and setting of rates for the slabs agreed. “There was a broad view that first of July appears to be more realistic,” Jaitley said, adding that GST is a transactional tax and can be introduced any time.
He said ministers also felt that industry and trade will have to be given adequate notice and once the rates are decided, the GST Network’s system will have to be modified suitably. The GSTN is GST’s technological backbone.