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States agree on GST threshold but fail to get much further
August, 22nd 2014

Despite the Modi government’s readiness to address some of the concerns of states over the proposed goods and services tax (GST), consensus on the contentious issues continues to be elusive.

The empowered committee of state finance ministers that met here on Wednesday agreed to adopt a turnover threshold of Rs 10 lakh for traders to register for GST but has demanded audit and enforcement powers over small traders who would be exempt from dual controls. This means in the case of traders with a turnover between R10 lakh and R1.5 crore, the states would not only have the powers to collect the taxes but also to enforce compliance.

Currently, the state value-added tax applies to traders with a turnover above R10 lakh in the case of most states, whereas some keep the level lower at R5 lakh.
Also, at Wednesday’s meeting, the state finance ministers reiterated that petroleum products must be excluded from the purview of the proposed comprehensive indirect tax by a constitutional provision.

The Centre has long argued that even though these products — a major source of revenue for both itself and the states — can be kept out from GST in the initial years, providing for such exclusion in the Constitution would be unwise given the tedious process for an amendment to the principal statute.

The states also stuck to their demand for a compensation mechanism where both parties have equal say and virtually rejected the Centre’s proposal that the matter be vested with a proposed GST Council with representations from both sides.

For businesses with a turnover over R1.5 crore, the tax will be collected and enforced by the Centre as well as state governments — the former will be in charge of the central GST (C-GST) and states, the state GST (S-GST).

The unanimity among states on minimum turnover threshold to impose GST would, however, pave the way for talks on the revenue neutral rate for the GST, comprising C-GST and S-GST components, as the base of the tax is now defined.

FE had earlier reported that the Modi government, eager to bring the tax reform that is expected to yield substantial economic dividends and stamp out chunks of the black economy, was considering giving a financial guarantee to all 29 states against any revenue losses from embracing GST. Besides, it is expediting the release of the compensation for past losses on the central sales tax (CST) front, pegged at R34,000 crore.

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