ISSN 2330-717X

India: Amendment Aims To Fix Complicated Tax System – OpEd

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The Indian tax system is the most complicated one in the world with the Centre; the States and local bodies having power to levy variety of taxes to earn revenue. The current multi-staged tax structure has charges from both the States as well as the Centre leading to a cascading effect on taxes. There are taxes at different rates and at multiple points. Centre has taxes like Income Tax; Service Tax; Central Sale Tax; Excise Duty and Security Transaction Tax while States have VAT or Sale Tax; Octroi; State Excise; Property Tax; Entry Tax and Agriculture Tax and so on. These multiple taxes over burned the Indian products affecting its price and sales in the domestic as well as global market. As such Indian uncertain tax policies have been criticized globally in the past. However, in the past two years, India has been on a tax overhaul which has been shored up the government reform credentials.

To address this, the Constitution Amendment Bill for Goods and Service Tax (GST) has been approved by the President of India post its passage in the Parliament (Rajya Sabha on August 3rd and Lok Sabha on August 8th 2016) and ratification by more than 50 per cent of states (16 States) legislatures. Government of India is committed to replace all the indirect taxes levied on goods and services by both the Centre and States and implement GST by April 2017. The passage of the Constitutional Amendment Bill as well as release of MODEL GST laws indicates the determination of the Government to implement GST at the earliest.

GST is heralded as the biggest tax reform since independence, reforming the Indian taxation system through implementing a single tax on the supply of goods and services, replacing all the direct and indirect taxes currently implemented by both the Central and States Government. It is still not clear how the new GST regime will impact the economy in the short and long run. Overall, it is expected that GST will have far reaching implications on businesses and production in India through a change in India’s tax structure, incidence, computation, payments, compliance, credit utilization and reporting. It is expected that this tax reform will increase economic growth rates and will broadly have beneficial impacts on the Indian economy through supporting the development of a common Indian market, reductions in logistics and transaction costs, improving compliance and broadening the tax base, and reducing the cascading effect of tax on the cost of goods and services.

As far as tax reform in the field of indirect taxes are concerned, the historical tax reform as a Challenge is the Goods And Services Tax (GST) which is at present under implementation stage. Government has decided to implement this law with effect from April 1st, 2017. GST is seen as the most ambitious and most significant tax reform in the history of indirect taxes which would subsume not only the Union Levies including the Central Excise Duty; Service Tax etc but also the state level tax such as Value Added Tax, Octroi; Entry Tax; Purchase Tax and Entertainment Tax among others. It is the culmination efforts of over 13 years by the successive Central and State Governments to reach the present level.

Union Finance Minister who chairs the GST Council that includes State Finance Ministers as its members has set a target date of 22th November 2016 to finalize the modalities of the tax including the model legislation and crucial rates for tax. In the last two meetings held 0n 22nd;23rd and 30th September 2016, GST Council has decided on issues including the threshold for business on which GST would be levied; the draft Business Rules; the future of Area Based Exemptions as well as control over small business among others. Business with an annual turnover of up to Rs 10 lakh in North Eastern States and up to Rs 20 lakh in other states will be exempted from GST. States will have the sole control over manufacturing business with an annual turnover of up to Rs 1.5 crore. There will be an element of dual control above the threshold and either the state or centre will have control over the business depending upon risk assessment.

GST CAPPING:

GST Council on November 3, 2016 noted that the GST will be levied at multiple rates ranging from 0 per cent, 5, 12, and 18 to 28 per cent with food grains exempted from the tax. The lowest taxes will go to several food items such as meat products, milk and dairy, and other processed foods. Purchase taxes, market fees (Mandi taxes), and infrastructure development taxes will be incorporated into GST. It is expected that better compliance will help in widening the tax base and hence lowering the tax burden on average dealer in agriculture trade. It will improve market competitiveness, helping export markets. Uniformity across states and the nation will help in compliance and the new GST tax structure is expected to help protect the interest of small traders and hence attract more traders, boosting competition.

There is, however, significant debate across the political spectrum at what standard rate the GST should be set and which items to include and exclude. The opposition parties are advocating for a rate below the generally proposed 18 per cent while some States are proposing to set it at 20 per cent to ensure adequate revenue collection. A report for the government on how to ensure neutral revenue rates after GST implementation recommends a standard GST rate of 17 to 19 per cent for most goods and services, a 12 per cent rate for some goods (including most agricultural goods) and a 40 per cent rate for luxury goods. The Central Government has clarified that all food grains and food commodities that go into the common food basket will be exempted from the tax and a few items will be taxed at the 5 per cent level. It is not yet clear which items will be taxed and how that may affect nutrition.

However, there arises certain concern regarding its implementation from April next. One such concern is that certain numbers of items are exempt from tax e.g. petroleum and petroleum products and electricity will not be under GST. States and centre will continue to levy taxes on them.

Tsunami of debates and discussions came crawling in ever since the GST bill been given a go-ahead from the centre. As the passage of GST bill rolls in towards scripting history in the Indian economy, various sectors agreed-disagreed with the India’s biggest tax reform. While government made a strong pitch saying it will put an end to tax terrorism, some were skeptical if India was ready to take such a great leap forward. Presently, GST Bill is getting ratified by the state governments and it is likely to come into consideration by April 2017. It would be of interest to know the industries directly or indirectly related to Agriculture which are exempted from taxes including Excise, VAT,CST etc The information may also be shared for food grains, irrigation projects, drip irrigation, farm machinery, tractors, fertilizers, seeds & agro-chemicals and water related.

If we have the audacity to believe what some gushing analysts are saying, the passage of GST Bill is as momentous as gaining independence in 1947. The euphoria will soon fade away as finance ministers of all states start the tortuous process of talks and negotiations with Union Finance Minister Arun Jaitley and his team of advisors and bureaucrats. Do remember: there is a chance that the implementation of the Bill could still be scarpered. If the opposition senses that the BJP is weak (could be after assembly elections in UP) and some parties start nit picking on a Money Bill vs a Finance Bill, the whole thing might collapse. In any case, most sensible analysts know that it would be at least five years before the positive effects of GST spread across the economy. The early stages in fact would see a lot of chaos.

GST & e-NAM:

GST is expected to create a more seamless movement of agriculture produce between states and is expected that primary markets can respond quickly to the market signals avoiding local shortages and avoiding transportation costs of up to 3 to 5 per cent depending upon the region and commodity. GST will help favor the e-National Agricultural Market (e-NAM) given that taxation on agricultural products will be simplified.  e-NAM will help in avoiding Mandi fees and taxes and link farmers with buyers and improving market efficiency, hence beneficial for both farmers and buyers. Both GST and e-NAM have a common goal to create an integrated National Commodities Market with a uniform tax structure for uniform market fees across the nation.

GST may help facilitate and significantly increase the trade of goods and services within India. Bihar is the only state without the Agricultural Produce Marketing Committee (APMC) Act and has also welcomed the ratification of GST saying it will increase country-wide trade and state tax revenues since it has no organized market sector. The multiple layers of taxes with the supply chain will be clubbed into a single tax. The movement of goods and services will at ease across the states. For example, successful GST implementation is expected to eliminate the queues of trucks waiting at state boundaries. Indian businesses are generally supportive of the GST as it is expected to simplify their value chains.

GST & Organised Agriculture:

Every supply chain will be affected by the new tax regime meaning that farmers will also be affected.  However, the effect is not clear yet since the laws in the act exempt agriculturalists but the allied services might be affected and hence can impact agriculture. To best understand the system, farmers need to understand the documentation, system compliance, and use of information technology along with the digital transactions. There can be some resistance due to initial new system adjustments.

The impacts on production, however, are unclear as it might dis-incentivize the farming community.  The reduction in the number of tax-exempt products from 300 to 90 under GST may include some farm inputs that currently have tax exemptions and concessions; that might be increase in their price and hence impact the net income of the farming community. Seeds will continue to be exempted.

The implementation of the GST along with demonetization may require farmers to increasingly use banking channels and appropriate banking policies may be required to waive feeds and help low-income farmers access the banks.

The implementation of the GST is expected to significantly boost trade within India. GST will eliminate the current multitude of taxes, duties, and surcharges that exist between states, thereby effectively creating a common Indian market. However, the taxes that will be imposed on the movement of goods are not clear. For instance, if goods move from producing states to consuming states, it is unclear which state will receive the tax benefits and how those benefits will be structured. However, ‘producing’ states are likely to experience a decrease in total tax revenues, and ‘consuming’ States an increase in total tax revenues, due to changes to where goods are taxed. It is hoped that the taxation of services by states will allow them to mitigate the expected shortfall in tax revenues.

GST Network:

The Central and State governments have joined hands to register for the new Goods and Services Tax Network (GSTN), a non-profit, non-governmental organization that will provide shared technological infrastructure. The key objectives of the GSTN are to provide a standard and uniform electronic interface to provide shared information technology infrastructure for all state government agencies.

It is expected that market signals will be clearer and food grains and other food commodities can move from surplus zones to deficit zones. This may help more traders participate and increase competition in the markets to respond to local food shortages. The GST system will help incorporate more accurate information on agricultural and food stock levels nationally and regionally, assisting with food security decisions. Perishables can move faster and cheaper due to less checks, paper work and taxes during transport.

GST & States Revenue:

The main concern in the application of GST to food is the impact it would have on those living at or below subsistence levels. It was noted that in the rural sector, the predominant distribution channel for unprocessed food would be either a direct sale by the farmer to final consumers or through small distributors and retailers. Even where food is within the scope of the GST, such sales would largely remain exempt because of the small business registration threshold. Further, the output of agricultural sector is mostly exempt from tax, and inputs in agricultural sector like power and fertilizer are heavily subsidized and will continue to be subsidized.

In effect, this means that ‘producing’ states are likely to experience a decrease in total tax revenues, and ‘consuming’ states an increase in total tax revenues, due to changes to where goods are taxed. However, it is hoped that the taxation of services by states will allow these states to mitigate the expected shortfall in tax revenues. Thus, the shorter-term and longer-term impacts of GST will be discovered in the near future. With the rollout planned to be next year on April 1, the important decisions rest on the shoulders of the GST council, regarding the GST rates. The capping of the GST at rate of 18 percent will not be favorable as it might lead to revenue deficits in some states.

But that’s not the point of this piece. Even as applaud this important tax reform, it is worthwhile to ask why Indian farmers cannot reap the benefits of a unified pan Indian market. Despite promises made by the government, Indian farmers are effectively slaves of Local Mandis where they have to sell their produce. It is a criminal offense for them to take their produce and sell it in another state. For those who have travelled in real India in trains away from Delhi, one common sight is ticket collectors and railway cops extorting bribes from farmers or traders carrying a few sacks of wheat or ride to another state.

For this India, a unified market is a cruel joke. In this age of so called globalization, why can’t an Indian farmers export his produce to any country in the world? As of now, that is unthinkable. In fact, every time India faces the prospects of shortage of any agricultural products, exports are either banned outright or heavy export duties imposed – Indian export is surplus based. This is not the only way the Indian farmer is marginalized, neglected and exploited. If you and I take a loan to buy a car, we lay an interest rate of 10 per cent at most. For a farmer buying a tractor with a loan, the interest rate is usually never less than 15 per cent. And even then, corrupt bankers and local leaders exploit farmers systematically even here. Initially, a farmer would be encouraged to take a tractor loan. Often he wouldn’t read the fine print. A month or two of default and the bank would seize the tractor and “auction” it to recover the loan. A local “leader” would buy it at throwaway prices and the loot would be shared. Meanwhile, the farmer and his family would be ruined. Look at the cruel joke played every year on farmers in the name of paying compensation for lost crops. The amounts range from Rs 15 to Rs 150.

GST & AGRICULTURE:

Indian agriculture sector which contributes around 16 per cent to GDP, are yet to pull down the curtain on how the implementation of the bill would affect the sector as there are mostly marginal and small farmers in the country. However, many lauded the centre’s decision saying it will help in the free flowing of the agri-products without any hindrance although there might be slight variation in taxation. The impact on the food industry will affect people living in all sections of the society. However, taxing the food could hold more impact on the poor. But, the exception of food can shrink the tax base as well. As we know that Agriculture is the root/backbone of the Indian economy and government has always kept it as its top priority. Food includes various different items such as meat, fish, poultry, grains, cereals, dairy products and milk, confectionary, snacks, candy, etc. In India, many of the food items have been exempted from the CENVAT, while cereals and food grains are liable for the state VAT of 4 per cent. While the other unprocessed food such as meat and eggs, coarse grains, fresh fruits, and vegetables come under the restricted state VAT category. Beverages are generally taxable, with the exception of milk.

Food is a large portion of spending of lower income households and any tax on food and farm produce would be regressive since production and distribution of food as well as agricultural produce is largely unorganized in India. Since most food items have been either exempted from tax or taxed at a lower rate, it should be the attempt of the government to let the agriculture sector escape taxation in a just manner after the GST legislation is enacted. The main issue in the application of GST to food is the impact it would have on those living at or below subsistence levels. Doubtlessly, it accounts for an even higher proportion of total expenditures and incomes that are living at the bottom of the income scale. Taxing food could thus have a major impact on the poor. By the same token, a complete exemption for food would significantly shrink the tax base. As expenses related to food constitute a sizeable portion of lower-income households, agriculture and agri-produce including food processing industry should be kept out of GST.

GST & National Agricultural Market:

A uniform purchase tax throughout the country will help further the aim of National Agricultural Market (NAM) however we may see a spurt in the prices of agricultural goods as the GST rate is expected to be higher than VAT which was capped at 4 per cent. It is expected that after the implementation of the GST, the prices of the agricultural products and services will rise but the products will be able to reach places via trucks in a better way. The implementation of GST will also favor the National Agricultural Market on merging all the different taxations on agricultural products. The ease of transportation of the agricultural good will improve the marketing and improve the virtual market growth. In the present system, we see that there are difficulties in the implementation of tax support by the centre over the policies of states. Therefore, in the GST regime, we can witness a boost in the inter-state trade and achieve goals of National Agricultural Market.

In order to achieve National Market in agriculture, there is need for harmonization in the provisions of APMC Act, EC Act and WDR Act. The implementation of GST is expected to facilitate the implementation of National Agricultural Market on account of subsuming all kinds of taxes/cess on marketing of agricultural produce as well as it would ease interstate movement of agricultural commodities which would improve marketing efficiency, facilitate development of virtual markets through warehouses and reduce overhead marketing cost. Agricultural commodities are perishable in nature in varying degrees therefore trade is influenced by the time required for transportation. The Economist (Nov 8, 2014) reports that long distance trucks in India are parked for 60 per cent of the time during transportation. The simple uniform tax regime is expected to improve the transportation time, and curtail wastage of precious food. The present system many times, makes it difficult to implement tax support provided by the centre for an agri-commodity due to heterogeneous policies adopted by the different states. The implementation of GST is expected to bring uniformity across states and centre which would make tax support policy of a particular commodity effective. The ease of availing tax credit under GST regime is expected to boost inter-state trade leading to achieving the objectives of National Agricultural Market.

The biggest pros of GST is that we will have a single tax without the cascading effect of multiple taxes, so only value addition is taxed at each point, that is a healthy international practice. Unless the overall GST is low for the food processing sector, it will lead to an increase in inflation and will not benefit farmers or consumers. It is hoped that GST does not put breaks on the growth momentum recently regained or burn a big hole in consumers already pin holed pockets and take processed food beverage, a fundamental necessity, out of the common man’s reach.

GST will bring within the tax net transactions such as trading in oilseeds, pulses and cereals, which, at the moment, are happening outside the tax structure. It will bring benefit to processor and consumers as cascading impact of prices will be checked, Sabziwala is an Indian startup company and its business is to source fresh vegetables and fruits directly from farmers and supply them to urban customers.

Dairy farming, poultry farming and stock breeding are specifically kept out of the definition of Agriculture given in model GST Law, hence it seems that these will be taxable under GST regime.

The mere cutting of wood or grass, gathering of fruit and raising of man-made forest or rearing of seedlings or plants have also been specifically kept out of the definition of Agriculture, hence it seems that these will be taxable under GST regime.

Agriculture by cultivating the land on crop share basis is kept out of the definition of “to cultivate personally”; hence it seems that these will be taxable under GST regime.

Agriculture by persons other than Individual and HUF seems also kept out of the definition of “to cultivate personally”, hence it seems that these will be taxable under GST regime.

Farmers, however, appreciate this decision – “GST is like a big boost to the agriculture sector. Interstate moving needs permission or approval as there are various taxes charged by different states. GST bill will solve most of the problem and will pave way for free market and moving from one part to another for retail and processing. Traders when they take a particular product across the country, at every point they are subject to various taxes, approvals, permissions and license. GST bill is the first act towards total liberalization of agriculture marketing.

Further, the introduction of the constitution (122nd) amendment bill will play a weighty role in the affordability of agri-machineries. It will give incentives on the sale of diesel which is the main product with which trucks carrying goods and tractors on the field operate. Incentive to agri-machinery on which excise duty is high will make it easily affordable than Chinese machinery. In India, where the farmers are mainly small and marginal and cannot afford expensive machineries, it will be a positive factor

However, the agri-commodity sector is still hanging by thread as to whether the APMC or Mandi taxes will be abolished and only GST will be applicable. The application of GST in the food and agriculture industry is into high consideration and the public is hopeful to witness various fruitful reforms in this sector. GST has been the long awaited 122nd Constitutional Amendment Bill, which has been passed by both upper and lower house and will become law by the next year. With the unification of the taxation system, many sectors will be benefited only if things go as per the bill. GST is good. But unless Indian agriculture and farmers are given the same freedom as other economic agents the economy, 50 per cent of India will continue to be legally discriminated against.

The Purchase tax (VAT) on agricultural products will get subsumed in the GST. However other “statutory charges” that are levied on food grains by local governments like Rural Development Fee, Market (Mandi) Fee, Infrastructure Development Tax and commission to agents etc. may continue in the new regime. It was considered to exempt the Purchase tax from GST at the behest of Food producing states like Punjab and Haryana, because these states earn significant revenue from Purchase Tax. For instance, Punjab earns more than Rs 1000 Crore from Purchase tax. But the centre has been able to convince these states by assuring that any fall in their revenue shall be compensated.

GST & Dairy:

GST is not beneficial for agricultural commodities and allied sector but might benefit the engineering sector. Currently, there is no tax to procure milk from farmers. We only pay 2 per cent central VAT on sale of milk powder to a company. When GST gets implemented, the tax can be 12.5 per cent or 15 per cent or 18 per cent. There will be a straight cost hike in milk and milk products prices.

GST & Tea Industry:

Tea industry of India feels that it should be exempted from GST. Tea is the most popular thing in India after water. Tea garden showcases the definition of agriculture in India and the Draft Model GST law insisted on its exemption. In case full exemption of GST is not possible, GST rate on tea should be kept at par with the current tax rate of 5 to 6 per cent. The present concessional tax rate of 0.5/1 per cent for teas sold through auctions is allowed to continue under the GST regime. Otherwise, tea will become costlier.

GST & FISHING:

GST be exempted on some specific items fishnet twine and ropes used by the fishing industry and poultry sectors and on fly ash bricks and blocks. The applicable GST on fishing nets, fishing twines and fishing ropes should be totally exempted as these are quite necessary for the fishermen and are now exempted from the purview of the Central excise duty and also VAT in almost all the States. These fishing nets are highly essential for the livelihood of the fisherman community.

Similarly, fishnet twine used for manufacture, mending and repair of fishing nets which is not taxed now should also be exempted. Fishing rope which was exempted earlier in many States should also be exempted and fishing rope if at all to be taxed; it should be at the lowest strata of 5 per cent.

GST & Poultry Sector:

Under the model GST law, the definition of agriculture excludes “poultry” from its ambit. There is need to maintain “status-quo” with regard to taxation of poultry products under GST regime as compared with present indirect tax regime. Currently, entire poultry sector (egg, chicken and major inputs like poultry feed) is not subject to any indirect taxes. However, if GST is imposed, it would lead to heavy increase in prices of these essential food products and adversely impact the pockets of poor and public at large, he pointed out, stressing that encompassing poultry sector within the ambit of GST law would also be highly detrimental to the poultry farmers. Fly-ash bricks and blocks have replaced the conventional red bricks which results in less pollution (as there is no burning of coal like the red bricks) and more importantly, it uses the very polluting fly ash that is generated from large numbers of thermal power plants. “These industries such as fly-ash bricks and fly-ash blocks reduce the menace of fly-ash and these industries are in green categories and all these units are in small scale sector. These exemptions can greatly benefit the underprivileged and deprived section of the country and help promote large scale employment as also help reduce pollution.

GST EXEMPTION:

A committee of officials headed by Revenue Secretary is preparing the item-wise list for GST rates. More than 16000 representations were received seeking exemptions or lower rate of GST. Though the exemption list has not been finalized as yet, it is learned that nearly 80 items would form part of exemption list (i.e. no GST would be applicable on it). These items include grains, non-mineral water, poha etc. Only 80 items exemption will lead our country to unsound economic. All food products must come under exemption. Only ready to mix Masala should be taxed.

Currently, common items exempted by the Centre and states include bread, eggs, milk, vegetables, cereals, books and salt. These should continue to be exempted. The negative list of services, exempted from the levy, will be reduced to include only essential services such as health and education. Only a very small number of essential services will be out of the GST net. The negative list of services currently has 18 heads, which include health care, education, goods transport agency and non-air conditioned restaurants, among others.

In the rural sector, the predominant distribution channel for unprocessed food would be either a direct sale by the farmer to final consumers or through small distributors/retailers. Even where food is within the scope of the GST, such sales would largely remain exempt because of the small business registration threshold. Given that food is currently exempt from the CENVAT, the GST under a single-rate, comprehensive-base model would lead to at least a doubling of the tax burden on food (from 4 per cent state VAT to a combined GST rate of 8 per cent). The alternative of exempting food altogether (or zero rating) would not be any better as it would have an adverse impact on Revenue Neutral Rate. Thus, prices of the agricultural items and services are expected to rise after the implementation of the GST, although the overall inflationary impact of the proposed indirect regime will be negative.

The output of agricultural sector is mostly exempt from tax, and inputs in agricultural sector like power and fertilizer are heavily subsidized for this sector, and should continue to be subsidized. As such there might not be any appreciable change in this sector on account of GST. However a final analysis can only be made when Actual GST Act are passed and implemented.

GST & Dual Control Controversies:
Central Board of Excise and Customs (CBEC) has started the exercise of putting the goods in the four tax slabs which will be shared with the GST Council. After nailing a four-tier rate structure of 5, 12, 18 and 28 per cent, the GST Council at its meeting on November 4 failed to reach a consensus on which category of assesses would be governed by the Centre and which by the states.

Differences on the issue of cross empowerment to avoid dual control arose with states demanding control over 11 lakh service tax assesses, and the Centre proposing to do away states having exclusive control over all dealers up to an annual revenue threshold of Rs 1.5 crore — an issue which was settled in the first meeting of the GST Council.

The draft legislation has 195 sections, so it is the core bill of the legislation. GST Council discussed 99 sections and a few clauses need to be redrafted, which would be changed during the course of time. Too many sections of law yet to be finalized, GST can’t happen without consensus on dual control.

The government is very clear on a single administration dealing with an assesses. Centre and States gathered for GST Council meeting to discuss GST Bills and control/ administration under GST on December 11-12. But two day meeting was curtailed to a half day gathering with discussion on clauses under GST Bills. With no headway on dual control/ administration and pendency of discussion on all clauses of GST Bills, it is more likely than not that GST would skip its roll out date of April 1, 2017. The GST Council has not been able make any headway on dual control. The council has not given a nod to GST laws as well. Next GST Council meeting will take place on December 22-23, 2016.

The Council has arrived at an option of two proposals — horizontal division and vertical division. ‘Horizontal division’ would mean taxpayers would be divided both for administrative and audit purposes based on a cut-off turnover. Those with a turnover over Rs 1.5 crore would be administered both by the Centre and the states, while those with below Rs 1.5 crore would be administered solely by the states.

‘Vertical division’ based on ratios assigns taxpayers to a tax administration, Centre or state, for a period of three years for all purposes including audit. Taxpayers could be divided in a ratio which would balance the interest of the Centre and the state, both with respect to revenue and spread of numbers. But the Centre feels that horizontal division would be lopsided as 93per cent of Service Tax assessees and 85per cent of VAT taxpayers have a turnover below Rs 1.5 crore.

Whether the (administrative) control over those with annual revenue of less than Rs1.5 crore should be given to the states, or should be handled by states and centre together, is only a problem of pragmatic administration. But that has become the stumbling roadblock now. States are peeved by the centre which is sticking to its position. Seventy-five per cent government employees are from the states. States share a good rapport with small traders (taxpayers below a threshold of Rs1.5 crore). The reasons (for giving administrative power to states) go on.

While the central government’s vote will carry a one-third weight, votes of all state governments put together will have a two-thirds weight. Every point attains conclusion with 3/4th majority in GST Council and administration may not get concluded in next GST Council meeting. To get a three-fourth majority, the centre needs the support of at least 16 states… The central government does not have those numbers, given the political equation within the council right now.

GST may miss the Bus:

In the scheme of things, it is a huge setback for BJP government as the April deadline looks tough to achieve as the winter session end on December 16. Majority of states, including Kerala, West Bengal and Delhi, are sticking to their stand of sole control over entities with turnover below Rs 1.5 crore. Vertical division of assessees for collection of taxes and for the purpose of audit would create problems for small taxpayers. Kerala, Bengal, Tamil Nadu, Bihar, Delhi, Odisha…majority of states want a combination of vertical and horizontal (dual control structure). Below Rs 1.5 crore turnovers, states should tax and above Rs 1.5 crore, it can be vertical division. Furthermore, it will be difficult for taxpayers of below 1.5 crore as they will have to face both state and central harassment. They will be sandwiched between the two pillars. Proposals should be executed in such a manner so that nobody will face problem.

States are demanding exclusive control over assessees of Rs 1.5 crore and below for both goods and services. Centre is agreeable on goods, but is not yielding on services. States are looking at their interest to safeguard their revenue. Centre will have to yield to states to get the CGST and IGST bills passed. A middle ground on the issue has to be worked out politically. A common ground is a must before centre proceeds to pass CGST and IGST Bill in Parliament.

BJP government has tried hard to push GST Bills in the recently concluded winter session. However, before that GST Council needs to agree on nuances of the GST Bills and control/ administration of GST. Centre and States have been unable to break the deadlock on pending issues in the GST Council. Considering winter session completes on December 16, there is very little time to fit in everything and present the bill.

The Constitutional Amendment Bill was passed by Parliament on 16th September 2016 implies that government has only until September 2017 to roll out GST in India. The Constitution does not permit delay in GST implementation. The government notified GST on 16 September and the Constitutional Amendment itself says the current indirect tax system can continue for one year, after which the GST has to come. If as on 16 September 2017, there is no GST, then there is no taxation in the country. Apparently, government have a constitutional compulsion to have a GST in place before September 16 (2017), otherwise the country doesn’t run, and the tax is absolutely essential. Central government will not be able to present the supporting legislation for the GST in this winter session of Parliament. The only way GST Bills can be tabled is to call a special session of the parliament for GST.

*Dr Gursharan Singh Kainth; Dr Rajinder Singh Bawa and Ms C A Joyti Soi
Guru Arjan Dev Institute of Development Studies


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