GST implementation likely to be delayed

The ninth meeting of the GST council on the 3rd and 4th of Jan, 2017 could not conclude on the contentious issue of cross empowerment and dual control. The Finance ministers from the states are already indicating a delay in the launch of GST from the stipulated date of 1st April 2017. Since the constitutional amendment is already in place, the GST cannot be delayed beyond 15th Sep 2017. The constitutional powers to levy the taxes as per the current system will cease by then and the governments have to adapt to the GST regime.

The Finance minister has indicated that GST is a transactional levy and can be implemented at any time during the year. The GST council members who comprise of the state finance ministers are of the view that given the present logjam on cross empowerment and territorial definition issues, the launch of GST may take place only in Sep 2017.  Mr Arun Jaitley, the head of the GST council has convened the next meeting on the 16th of Jan to iron out the differences on the unsorted issues. There are expectations that the FM should indicate a timetable for the rollout of GST in his upcoming budget speech on the 1st of Feb. The second part of the budget communication may carry only the half yearly indicators of service tax and excise duty collection figures from April to Sep, rather than the full year estimates. This will be a pointer to the 2017-18 mid-year rollout of GST.

The draft legislations for the CGST and SGST are already under legal vetting and it is the IGST that continues to be the bone of contention. The dual control, cross empowerment and the “territorial taxing rights in high seas” are the issues that are holding up the IGST legislation. The interstate GST covers the sharing of the administrative control where the goods and services are sold in more than one jurisdiction. The IGST has eleven chapters and ten have already been agreed upon.

The states are for a horizontal divide on the GST in states based on the turnover of the business. They want the exclusive control of businesses with a turnover of 1.5 Cr or less. They are ready to share the taxation with the centre where the business turnover exceeds 1.5 Cr. The centre, on the other hand, wants a vertical split based on the number of assesses in the state irrespective of the turnover. Since the centre has already agreed to compensate the states for the loss of revenue for five years, they have the right to a better transparency in the revenue collection. The state of Karnataka has a proposal in this regard which may be reviewed at the next meeting.

There is a demand for the territorial taxation rights by the states that have coastal areas for activities like fishing. The sea area within 12 nautical miles is a part of the Indian Territory where the service tax and customs are charged by the centre government. The fishing rights and the taxation control are also likely to be sorted out in the next meeting.

With the budget presentation date approaching fast, the FM would definitely like to resolve the IGST issues in the GST council meeting on 16th Jan. This would definitely help in a GST rollout before Sep this year.

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