The two-day session of the GST council in the penultimate week of Dec’16 came to an end without a consensus being reached on the issue of “dual control.” The states want a 100 per cent control on the GST in their respective territories where the businesses turnover is under 1.5Cr. They have been doing it for the goods and now want to exercise control over the services as well, which is the prerogative of the centre government. The centre, on the other hand, does not want to let go its stranglehold on the service tax on an all-India basis. Though a new date of Jan 3-4 has been indicated for the resolution of the power struggle, but the solution seems still far away.
One good thing that has happened in the GST council meeting was that the draft of the CGST and SGST laws have been finalised and approved. The legally vetted copies will be delivered to the state machinery. The CGST law has to be approved by the Parliament while the SGST law would be taken up in the state legislatures. It has been decided that the centre and states will collect 50 per cent each of the GST rate. For example, if the GST rate applicable slab is 12 per cent then both the Centre and State will get 6 per cent each. The four slabs of GST have already been agreed at 5, 12, 18 and 28 per cent. Besides these, there will be a cess on certain luxury goods and sin goods such as cigarettes and tobacco.
The centre also wants to exercise control on the IGST. It implies that all the inter-state supply of goods and services will be taxed by the centre. Some clarity is still to emerge on the state territories and the states are at loggerheads with the centre on the administration of the IGST. There is a lot of disagreement between the centre and states on the issue of cross empowerment and IGST administration. Both the issues are to be taken up simultaneously in the next GST council meeting. It may be very difficult to arrive at a consensus without letting go the rigid stands.
The centre is in favour of vertically splitting the assesses rather than drawing a horizontal line at 1.5 Cr. Based on the number of assesses in the state both the centre and state will have the control on a fixed proportion each. The centre is pushing forth the formula as it has already insulated the states by the compensation law. The states will be compensated for the loss of revenue arising out of the implementation of GST for the next five years. The states are now complaining about the damage due to demonetization and looking for a higher compensation.
In wake of the above-mentioned issues, the implementation date of GST from the 1st of April, 2017 seems highly unlikely now. It would be an achievement if the GST council can resolve the contentious issues and the GST laws are passed in the Parliament and state legislatures in the next sessions.