Breakthrough on dual control – expect GST from July’17

It was at the recently concluded ninth GST council meeting where the long debated and contentious issue of cross empowerment was finally resolved. Earlier the dual control matter was being discussed in the GST council meetings and was getting postponed as neither the States nor the Centre was agreeing to let go the control on their existing tax domains. Finally, the Centre and States have agreed on sharing power for jurisdiction over tax payers under the Goods and Services Tax.

The state administration wanted to have 100 per cent control of the state taxation, on businesses, where the turnover was below 1.5 Cr. They have been able to get away with a larger chunk of 90 per cent where they will have the powers for assessment of the taxpayers. The centre was desperately trying to get into the under 1.5 Cr bandwagon for greater transparency. Though they could just get a small share but it will definitely get them the entry that they wanted. For taxpayers, with a turnover of more than 1.5 Cr, there was never a problem and the centre and states agreed to a 50-50 split.

The finance ministers of West Bengal and Kerala were strong supporters of the 100 per cent State control of taxation on businesses with a turnover below 1.5 Cr and expressed their displeasure at the decision in the council meetings. They want to protect the interests of the small traders and save them from scrutiny by the Centre. Even then, the agreement in the ratio of 90:10 is highly favourable decision for the states.

To give impetus to the GST which has got delayed due to the demonetization furore in the winter session of the Parliament and the dual control resolution delay in the GST council meetings, the council has revised the Goods and Service Tax roll out from July 1, 2017. Though it means a delay of 3 months from the original target date of April 2017, it still is a big achievement in the right direction.

The territorial waters taxation issue was also amicably resolved. In the GST council meeting held on 16th Jan, it was decided that the States would also have the authority to tax the business activity that operates within the specified limit of 12 nautical miles of the ocean adjoining the coastline. As per the Constitution, the control of the activity in this region is the prerogative of the Centre.

Another point was the power to control and levy the IGST. The FM clarified that the taxation on the inter-state movement of goods and services will remain with the Centre. However, by making special provisions in the law he agreed for the cross empowerment of the States. Now the GST council is scheduled to meet on Feb 18 where the drafts for IGST law and supporting legislations will be approved. These will include the subsuming of the central and state levies like service tax, VAT and excise duty.

The Finance Minister has indicated that one taxpayer will be assessed by only one authority.

With the resolution of the cross empowerment issue, a big hurdle in the smooth rolling of GST has been cleared. In another month or so the other pending steps would also be concluded. It now appears that GST will see the light of the day in a few months from now.

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