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Consensus unlikely on tax rates at GST council meet
September, 21st 2016

The first meeting of the goods and services tax (GST) council scheduled for later this week is unlikely to reach a consensus on tax rates under the indirect tax regime or on the issue of sharing administrative powers between the centre and the states, government officials aware of the matter said.

The sub-committees formed by the empowered committee comprising state and central government officials to look into these issues and arrive at a basic consensual framework has met only once so far, one of the state government officials cited above said, requesting anonymity.

“The methodology for deciding the rates has to be arrived at. For this, clarity is needed on the exemptions list and the threshold. The exemption list has to be pruned from the existing one. A decision also has to be taken if a negative list of service tax will continue in the GST regime. Rates and dual control will be discussed, but a consensus looks unlikely. A lot of the ground work still remains to be done,” the official said.

Since it is the first meeting, the main agenda will be to finalize the rules of conduct of business, another official said, also requesting anonymity.

A consensus on the revenue-neutral rate (RNR) or the tax rate at which there will be no revenue loss to the states under a GST regime has so far been elusive.

The states have expressed concern over the wide divergence in the RNR proposed by the government panel led by chief economic adviser Arvind Subramanian and the report commissioned by states and submitted by New Delhi-based think tank National Institute of Public Finance and Policy (NIPFP).

The standard rates proposed by the Subramanian panel are around 18%, while those proposed by NIPFP in its latest report are around 22-23%.

The centre had said that computation of the tax base will be another key factor that will go towards the calculation of the tax rate that protects the revenue of the states and the centre as well as keep the tax rate reasonable to minimize the inflationary impact on the common man.

Dual control has also been a major point of disagreement between the centre and the states with the latter insisting that all small traders with a revenue threshold of below Rs1.5 crore should be only under the administrative control of states. So far, the centre has not yielded on this issue, but has repeatedly assured the industry that every taxpayer will be under the administrative control of only one tax authority.

Calling it cross-empowerment, revenue secretary Hasmukh Adhia had said that it is possible to divide the scrutiny cases between the centre and the states as per mutual agreement.

Sumit Dutt Majumder, former chairman of the Central Board of Excise and Customs, said the way around the dual-control problem could be a small taxpayers unit along the lines of the large taxpayers’ unit (LTU) existent at present.

“All income tax, excise and service tax issues are handled by the LTU for large taxpayers. Something similar can be done for small taxpayers below Rs1.5 crore wherein state GST and central GST officials can work together in the small taxpayer unit. The centre has the right to collect integrated GST (IGST). But if states’ demand single control, then the Constitution may have to be further amended to allow states to collect IGST,” he said.

The government is aiming to implement GST from 1 April, but finalizing these issues and the three draft GST legislation by mid-November will be crucial to adhere to this deadline.

GST, considered one of the most ambitious indirect tax reforms undertaken in independent India, will remove barriers across states and unite the country into a common market. It will subsume most of the indirect taxes levied by the centre and the states, including excise duty, service tax, value-added tax, entertainment tax, entry tax and luxury tax.

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