What To Expect From The GST Council’s First Meeting
The proposal to introduce a comprehensive Goods and Services Tax (GST) is one of the most noteworthy indirect tax reform in India since independence. The reform is aimed at bringing together the Centre and various states by developing a common Indian market and reducing the cascading effect of varied taxes on goods and services. The foundation of this momentous journey was laid down by the passage of the 101st Constitution Amendment Act, enabling both the Centre and the states to levy tax on the supply of goods and services. The Union Cabinet’s approval for establishment of the GST Council is another key milestone towards achieving the proposed GST rollout deadline of April 2017.
The GST Council, which will be a constitutional body, is slated to be one of the most powerful bodies entrusted with the task to oversee and administer GST in India. As part of this, the council will be required to give its recommendations on some key aspects, inter alia covering tax rates, exemptions, minimum threshold etc. The constitution of the body has been framed in a manner that ensures that any key decision by the Council requires a concurrent decision by both the Centre and the states.
Agenda Item 1: GST Tax Rates
While the GST Council will lay the foundation of the entire GST framework, one vital decision which the entire nation is keenly watching out for is on GST rates and various taxes to be subsumed under the GST. The Council’s recommendation on tax rates will significantly impact the pricing decisions of all companies which will ultimately have a bearing on the overall economic growth in the country. Based on earlier recommendations of the Chief Economic Advisor, it is largely expected that a three-tier rate structure will be recommended by the council. Under this structure, certain essential goods are likely to be taxed at a lower rate, with a higher demerit rate proposed on a few goods such as luxury cars, aerated beverages, pan masala and tobacco products. The majority of goods should be taxed at a standard rate.
Agenda Item 2: Exemptions
Another important recommendation by the council will be regarding the list of commodities to be exempted from the levy of GST. Presently, there are more than 300 items exempt under excise laws while approximately 100 items are exempt under the VAT laws. The recommendations of the GST Council on this aspect would be highly critical for the industries which are currently enjoying these exemptions. Similarly, the council will also provide recommendations on the minimum threshold for levy of GST. Currently, under excise law, there is a high minimum threshold, and lowering of the same under GST will widen the overall tax base.
Agenda Item 3: Dispute Settlement Authority
The council is also required to decide on the system of resolving disputes arising out of its recommendations. The current GST Bill seeks to entrust the power of dispute resolution to the GST Council comprising of centre and states instead of an independent body like GST Dispute Settlement Authority. A dispute redressal mechanism is much needed as issues are bound to come up between states, or the centre and states, or even with local bodies. The proposed GST Council, as the dispute resolution body, is being criticised on the grounds of conflict of interest as it will be required to resolve the disputes arising out of its own recommendations.
Agenda Item 4: Addressing Ambiguities
Apart from providing recommendations on key aspects, the council also has a larger role to play by assisting taxpayers and the income tax department in overcoming various ambiguities under model GST laws with respect to principles of levy, apportionment of IGST (Integrated GST - on inter-state transactions), principles of place of supply rules, dual administration, etc. The GST Council will also recommend special rates for additional revenue in times of natural calamity or disasters and make special provisions with respect to certain specified states. Additionally, the council will decide on the date of levy of GST on petroleum crude, natural gas, high-speed diesel, aviation turbine fuel and motor spirit (petrol).
The first meeting of the GST Council is proposed to be held on September 22-23, 2016. This maiden meeting will be keenly watched as it embarks a step closer to GST and lays down the cornerstone for implementation of the fresh tax regime in the country.
Rajeev Dimri is a Partner with BMR & Associates, leading the indirect tax practice. He specializes in tax matters and in structuring domestic & cross-border transactions for goods and services covering a range of indirect tax issues. Poonam Harjani & Nimisha Chaudhary also contributed to this article.
The views expressed here are those of the author’s and do not necessarily represent the views of BloombergQuint or its editorial team.