GST Council’s First Meeting: Several Positives, Minor Hiccups

Things continue to move rapidly on goods and service tax (GST) front. The first meeting of the newly formed GST Council, which took place on September 21 and 22, was keenly awaited. The meeting didn’t fall short of expectations, several positives came out from the meeting, with only minor hiccups.

First and foremost, all the decisions were taken with consensus, without having the need for voting. This augurs well for functioning of the Council as it takes several critical decisions over next couple of months, including GST rates and exemption list.

Exemption Thresholds

It’s good to see a consensus on threshold of Rs 20 lacs (Rs 10 lacs for North Eastern states) emerging in the meeting, which has been a contentious issue of debate between Centre and states in the past. While Centre wanted to keep it at Rs 25 lacs, states were earlier insisting to have a limit of 10 lacs (which was indicated in the Draft Model GST Law as well). Statistics reveal that businesses having less than Rs 20 lacs of turnover pay meagre amount of VAT across states, possibly less than 1 percent or thereabouts. Rs 10 lacs of limit would have meant thousands of small businesses getting into the GST fold, which would have been an administrative nightmare for the Government, without a real possibility of corresponding tax collection.

Dual Control

The other critical issue on which a broad consensus has emerged is the issue of ‘dual control’. Industry had strongly represented that they would prefer to deal with only one set of authorities (either central or state) rather than being assessed, scrutinized and controlled by both. Apparently, the Council has worked out a cross-empowerment model that will allow taxpayers to restrict their interaction to a single tax authority for CGST, SGST and IGST. State authorities will have jurisdiction over assessees with annual turnover of less than Rs 1.5 crore and those above that will be administered as per the new model. Under this model, tax administrators will use a formula to decide which assessees they will audit or register. Thus, the taxpayer will then have to primarily interact with only one authority.

Service Tax

It has also been decided that the power for assessment of 11 lakh service tax assesses who are currently assessed by Centre, would remain with it. New assessees would be shared with state authorities after due training and capacity building.

Cesses

Other decision of the Council was that all cesses would be subsumed under GST. The industry is however still uncertain as Article 270 of the Constitution, which provides power to impose such cesses to the Central Government, still survives. Interestingly, recent GST FAQs issued by the Government also says that all such cesses would become part of GST. It’s important that it is so, if GST has to be simple and does not lead to cascading of taxes, which are two twin objectives of its implementation.

Decision of giving compensation to states on a quarterly basis should also help in building the trust between the centre and states. Overall, first meeting of the council was a good day in office.

Next meeting of the Council on September 30 will finalize draft rules on granting exemptions while the GST rate and tax slabs would be decided at its three-day meeting beginning October 17.

Industry looks forward to same spirit of co-operative federalism in next meetings as well, as India Inc. gallops towards the most radical reform of independent India.

(Pratik Jain is a Partner & Indirect Tax Leader at PricewaterhouseCoopers)