At the end of the fourth round of meeting of the GST Council, the Centre and states failed to arrive at a mutually acceptable dual control structure.
Finance minister Arun Jaitley said two points of view emerged at the meeting on how to divide the assessee base between the Centre and the states. The earlier proposal, and one acceptable to states, is a horizontal division of the base of assessees, between the Centre and the states, using a threshold of Rs 1.5 crore turnover. But the Centre proposes to divide the base of assessees vertically without a threshold, though many states like Kerala are opposed to that.
But Jammu & Kashmir’s Finance Minister Haseeb Drabu told BloombergQuint that the state would back a vertical split of administrative powers under the GST regime.
Not A Deal Breaker, Just A Roadblock
What have you made of the current impasse that has developed between the Centre and the states on the issue of dual control?
This is purely an administrative issue. Honestly, it’s a turf battle between the Centre and states driven by their respective bureaucracies. It has nothing to do with the system per se and in terms of the GST itself. Ideally, because its a unified GST, it should have one control, not one authority, having control over a specified group of assessees. It has been discussed for very long in the empowered committee a kind of horizontal distribution, a turnover-based distribution was set up - that below Rs 1.5 crore states would have the full rights because this involves small traders and the states collectively felt that they should not be exposed to the central bureaucracy. This would be an encroachment on the states’ tax administrative apparatus. But then the service issue came in, at which point the Centre kept arguing that states don’t have competencies in services, at which point the earlier consensus was broken. I think now a bit of politics is being played by some states. Now we have two options- we can either look at it vertically or horizontally.
But I don’t think it’s a deal breaker. It is just a bit of a roadblock right now. It should get resolved by November 24. I think there will be some way out, most likely in my opinion you would not mark it on the basis of turnover, in terms of a horizontal cut-off, but vertical split given the size of the stakeholders in this and bureaucracy’s existing roles. The states can do assessments of two-thirds of assesses and the Centre can do one-third of the assesses. That’s how, in my opinion, it will pan out. It can be 75:25 or 70:30, but it will settle somewhere around that.
The idea is that an assessee should face one authority, not the multiple authorities as it faces now. It faces state government for VAT, central government for service tax and so on. That should not happen. So the idea is that one authority should assess one and that assessment by that authority should be acceptable to both Centre and states. That’s the key issue.
In a vertical split, this 75:25 split that you were referring to, is that representative of the tax officers base at the Centre and states?
In a matter of speaking yes, but not driven by it. That may be one criteria. The other criteria would also be in terms of experience. The larger clients could be handled by the Centre, those above a certain turnover. There is general concern about financial services where states don’t have that expertise. I would imagine that would be one of the factors. In fact, it can be an argument enough for justifying the cut off, but I don’t think there is a basis for it.
One Tax, One Administration?
What in your personal opinion is right way to go about it? If we were to look at it from an assessee point of view, ideally wouldn’t it be perfect if one authority did all the administration and took care of all the nitty gritty as opposed to having assessees carved up.
In any case, no matter what happens an assesse will be faced with one authority. He will never have two authorities in the GST case. So for him it is invariant, unless he has a preference for a particular authority, in which case if he gets assessed by a state he will have a view. But otherwise be it the Centre or states these are two legitimate, elected governments, both have taxation powers. They have pooled their taxation powers to come together. You can’t say that one guy should assess it. One guy is assessing it. Now who assesses whom is something that will be worked out.
What happens across a complex supply chain in an industry? Do you foresee difficulties if some part of the supply chain is assessed by the Centre and some assessed by state? Could that lead to difficulties in reconciling assessments, refunds?
No, because the back-end is the same. Every single assessment lands up at the GSTN (GST IT Network). So, it’s not as if you will have two parallel databases, even the call centres are coordinated. So it’s not that you have two parallel lines running. it’s only the front facing part of it. So in terms of backroom information, database, analytics, all that would be uniform. IGST (Inter-state GST) would rest primarily with the Centre, that’s my sense of it. All your inter-state taxes will get into one category. But if you are looking at some assessee in Maharashtra selling in Jammu & Kashmir, then if the Mahrashtra government assesses in Maharashtra, and in case of Jammu & Kashmir it’s the central government, then the assessment of the Maharashtra authority is binding on the central government. I think a lot of clarity is required still. We can’t say anything till we have certainty on how it will pan out. But in a matter of principles assessees will face only one authority.
Just like the Centre and the states came together to build the GSTN, one common back-end as you call it, why is it not possible to combine tax officers from the Centre and the states to build out one common force?
That was one suggestion. In fact I made a suggestion to the effect saying that this GST Council is India’s first federal institution. It must have its own bureaucracy. We must look at getting a federal tax bureaucracy in place which will in years combine officers, making one bureaucracy reporting to the GST Council. I think that will take some time. Perhaps when we have reached the consensus, we can work towards setting up a federal bureaucracy. Till that time, interim measures will be in place. That’s how I would like it to be. So this is under discussion and the finance minister referred to it, that it will take some time.
One apprehension states have is that the Centre will set up its own bureaucracy and that is avoidable. If that issue is resolved, this whole issue of dual bureaucracy will go away.
That’s what the Kerala Finance Minister Thomas Isaac told us. He thought this was an unnecessary expansion of the central bureaucracy at the local level. He also said that matters have reached an impasse at this point in time and the Centre remains intransient on this issue. What do you expect will be the steps ahead to find a reconciliation in both positions?
Isaac is a very dear friend. I don’t see this as a deal breaker. If it’s a roadblock, it’s a roadblock . I think we have come this far and it will be done in time. I don’t see a problem. I personally think it will end up not on a horizontal basis but on a vertical basis. So some part of it will get assessed by the central authority because we need to have some optimal use of manpower that exists already and the competencies that the bureaucracy has must be put to best use. But as a matter of principle, it’s a unified tax administration .
J&K Needs A Variant Of The GST Law
Is that what Jammu & Kashmir would put its weight behind? If I remember correctly, you’ll are yet to offer your approval to the GST constitutional amendment?
We have a whole other set of issues, which we are resolving on the side. What we are discussing in the Council is a generic issue. Jammu & Kashmir is a very special state, the only state in the country which has the power to tax services. So we have to have a slightly different variant of the GST law.
Is that why you have not yet approved the GST constitutional amendment?
Down To A Vote?
Do you expect the the issue of dual power to come to a vote?
The way it has been conducted by the finance minister is remarkable and I’m being very honest about it. He has shown a lot of patience and statesmanship about it, and a lot of maturity. It could have been put to vote on day one. I think he has resolved all the issues so far. There were 10-12 critical issues, this is the last remaining one. And I don’t think or see it would be done through a vote, I think it will be done through a consensus.
At this point, do you think the majority of the states agree with the Centre? Or disagree with the Centre and prefer a horizontal split?
Honestly, if you sit through these meetings you will realize it’s a fruitful discussion There are some political issues, but otherwise I don’t see states getting into that kind of behaviour
But Jammu & Kashmir would back a vertical split?
We would back it. I mean we would put our suggestion forward. I would back a federal bureaucracy. But otherwise these transition elements can be changed, annually or biannually or whatever. But this is a critical issue and resolution will come through.