GST Council Sets Threshold Limit At Rs 20 Lakh, Resolves Dual Control Issue
The Council will meet again on September 30 to finalise draft rules on exemptions.
.jpg?rect=0%2C10%2C2201%2C1238&auto=format%2Ccompress&w=200)
At the end of its first meeting, the GST Council has arrived at a broad consensus, agreeing on Rs 20 lakh per annum as the standard threshold for GST exemption and Rs 10 lakh per annum as the threshold limit for 10 states, including the North Eastern (NE) and the hill states. This means that a trader with an annual turnover of less than Rs 20 lakh (Rs 10 lakh for the north-eastern and small states) would be exempt from the GST regime.
It is an economic decision that the Centre as well states want to leave the small taxpayers, at the same time smaller states which do not mind chasing these taxpayers considering they constitute a substantial amount of their tax collections, can tax them, said Rajeev Dimri, Leader of Indirect Tax at BMR & Associates LLP.
Resolution On Dual Control
The Council has also agreed to the state authority assessing businesses with a turnover of up to Rs. 1.5 crore, and some dual control for businesses with turnover above that threshold.
Above Rs. 1.5 crore there will be an assessment which is possible for the purposes of central excise by the Centre, VAT by the state, and therefore this category which accounts for bulk of the revenue, there would be an element of dual control, and there would be cross empowerment of the officers of centre and state governments.Arun Jaitley, Finance Minister
Based on a formulation of risk assessment between the Centre and state, it will be decided which assessee will be assessed by either of the two authorities to avoid dual control, he added.
The Centre and each state has risk profiling of each taxpayer based on which risk assessment of each taxpayer is done, Rajeev Dimri said. The agency with a higher risk assessment of the taxpayer will get to audit the taxpayer, he added.
The industry is not concerned about how the government will assess them, but it is bothered that either of the two (Centre or state) should assess them, and not both of them,” said Pratik Jain, partner of indirect tax at PwC.
Also Read: How To Be GST Ready?
Compensation For Revenue Loss
The finance minister also said that the Council has set financial year 2015-16 as the base year to determine compensation for revenue lost by states once GST is implemented.
A few decisions were taken as to which items would be included in the revenue, and it was agreed that cesses would be a part of it, Jaitley said adding that, “The general consensus was payment of compensation should be at regular intervals, it should be quarterly or bi-monthly.”
Among the suggestions that the Council received on revenue compensation for state governments incurring a revenue loss, was to select the revenue of three best years out of the last five years. The finance minister himself has proposed a 12 percent annual hike in compensation.
“The FM (finance minister) gave a very good solution which will be acceptable to everybody, it is not confirmed, let us make 12 percent growth rate, and compared to 12 percent growth rate whatever compensation is required to be given, shall be given by the Centre. This is the FMs proposal which is still under consideration,” Gujarat Minister of State for Finance Rohit Patel said.
This is a welcome move from the Centre as this ensures that manufacturing states do not have a risk of loss of tax on account on GST, as the compensation rates are benchmarked at a higher growth rate of 12 percent as compared to the national average.L Badri Narayanan, Partner, Lakshmikumaran & Sridharan
Most state governments, including Gujarat, have asked for an average of revenue over 5-10 years for calculating the compensation component. Under the GST regime, it is expected that manufacturing states will be looking at a hit in their cash flows as the tax benefit would reflect in consumption driven states.
While Patel insisted that Jaitley’s proposal has not been accepted by the empowered committee of state finance ministers, he maintained that most of them were on board with the idea.
The other proposal from state governments was a demand for including the tax revenues from Central Sales Tax in the compensation for state governments. Odisha’s Finance Minister, Pradip Kumar told BloombergQuint in an interview that Odisha and West Bengal seek pairing CST component till financial year 2016-17 in compensation. He explained that this component has not been added to the proposed compensation for loss of revenue.
GST RateTo Be Decided In October
On September 30, the Council may decide on draft GST rules, and work out the mechanism for exemptions to North-Eastern states, as well as other states and the industry, and whether they will be charged and credited later by direct benefit transfer, Jaitley said.
The next formal meeting of the GST Council will take place on October 17-19. It is in that meeting that the Council will deliberate on the revenue neutral rate and the applicable GST rates on various categories of goods and services, said the finance minister.