GST: Duel Over Dual Control
GST: Tug of war between Centre and states over who gets to assess whom!
At the end of the fourth round of the GST Council meeting, it seemed like the states and Centre are engaged in a duel over dual control. After its first meeting, the Council had announced that dealers with annual turnover of less that Rs 1.5 crore will be assessed by states and those with annual turnover of more than Rs 1.5 crore will be assessed by both the Centre and states.
It looks like the Centre has now changed its mind, said Nihal Kothari, executive director at law firm Khaitan & Co.
Traditionally, taxpayers with turnover of less than Rs 1.5 crore were exempt from excise duty and Centre did not have any administration over these entities. States had administration over these entities through imposition of value added tax. These include a large number of trading community that form the tax base. When the states disagreed to the proposal that the Centre will continue to have jurisdiction over service tax assessees, the Centre also disagreed to cede control over dealers with less than Rs 1.5 crore turnover.Nihal Kothari, Executive Director, Khaitan & Co.
This issue of cross-empowerment was at the heart of the discussion on the second day of the GST Council's last meeting. Two points of view emerged at the meeting on how to divide the assessee base between the Centre and the states, Finance Minister Arun Jaitley told reporters at the end of the meeting. One suggestion was to divide the base of assessees horizontally, between the Centre and the states, with threshold of Rs 1.5 crore turnover. The other suggestion was to divide base of assessees vertically without a threshold.
At least 15 states, including Tamil Nadu, were in favour of the horizontal division, K Pandiarajan, the state’s education minister told BloombergQuint over the phone.
There is very strong opposition taken by all these states that we would want a horizontal division of Rs 1.5 crore below which the states should have complete jurisdiction of all the processes, right from collecting the money down to certain enforcement and above Rs 1.5 crores, it could be cross-empowerment.K Pandiarajan, Education Minister, Tamil Nadu
Pratik Jain, a partner at PwC’s indirect tax team explained that in a vertical division, irrespective of threshold, the businesses will be divided between the Centre and states according to a previously agreed upon formula – for instance, two-thirds of businesses could be assessed by the states and and the remaining one-third by the Centre.
A horizontal division will mean that two similar entities will be subjected to varying assessment frameworks thereby triggering a higher risk of inconsistent treatment, Uday Pimprikar, a partner at EY’s indirect tax team told Bloomberg Quint. On the flip side, the division based on turnover is easier to define and administer. The issues related to vertical division will primarily emanate from how it will be defined, he added.
For example, certain sectors (especially pan India services) could be entirely handled by the central government. However, it is important that such a division should be done basis supplier engaged in the defined supplies. Entities could be engaged in various businesses - some entitled to be covered in a particular vertical division and another in a different assessment framework (if the framework is defined basis supplies) - this will unintentionally create confusion on account of overlapping assessment jurisdictions.Uday Pimprikar, Partner- Indirect Tax, EY
The states, however, are vehemently opposing a vertical division.
Vertical division is a completely unworkable proposition because you don’t have the Central officers being present in even cent percent of the locations where collections happen now. The state officers are present at every block of the country, every taluka of the country and Centre will have serious problems. They need to add probably double the number of people they have while they should actually look at reducing the number of people both at state and Centre. In my view I think this is a completely unworkable proposition.K Pandiarajan, Education Minister, Tamil Nadu
The Centre and state ministers will now meet informally on November 20 to seek political solutions on the dual control issue.
