Is GST Council’s Solution To Dual-Control Problem Optimal?      

After its first meeting in September last year, the Goods and Services Tax (GST) Council had announced that under the new indirect tax regime, dealers with an annual turnover of less than Rs 1.5 crore will be assessed by states, and those above this threshold will be assessed by both the Centre and states. But this solution was short-lived. Since then, in meeting after meeting, the Council struggled to arrive at a consensus on the issue.

Finally, it came to an agreement on January 16, 2017 after nine rounds of meetings. Speaking to reporters at the end of the last GST Council meeting, the finance minister said states will audit and scrutinise 90 percent of the assessees who have a yearly turnover of Rs 1.5 crore or below, and the Centre will assess the remaining 10 percent. Those with an annual turnover above Rs 1.5 crore will be equally divided – 50 percent each. And, each taxpayer will be assessed by only one authority, he said.

Jigar Doshi, an indirect tax partner at consulting firm SKP Group, told BloombergQuint that the division of assessee base between states and the Centre in the 90:10 and 50:50 ratio by a computer program may sound like a simple split, but in practice taxpayers may face many unforeseen challenges.

“For instance, if ‘turnover value’ were to serve as the logical base for assessee split, then more often than not, assessees within Rs 1.25 crore to Rs 1.75 crore turnover range may face tax jurisdictional difficulties. As the turnover of an assessee changes from one assessment year to another, he may shift from one turnover bracket (above Rs 1.5 crore) to another (below Rs 1.5 crore),” Doshi said.

The challenge, Doshi explained, could be that once the turnover rises or falls below the threshold, the assessing authority will change. The experience on this front under the service tax law has been very cumbersome, he said.

S Madhavan, co-chair of the GST task force at industry body FICCI, is not so pessimistic. The 90:10 formula is a good way of allowing the states to administer taxpayers who provide services as opposed to their present powers which are limited to goods. He doesn’t see changes in turnover leading to any challenges.

If as a result of computer modelling, the Rs 1.75-crore turnover dealer is placed under one administration, the fact that the turnover goes up and down later on will not change the assessing authority, Madhavan explained.