The Centre and the states failed to emerge with a consensus on the issue of dual control at the fourth meeting of the GST Council on Friday. Out of the five options proposed in the meeting, the Council will now explore two options of horizontal or vertical division of tax assessees for dual control, an issue which has been pending since the second Council meeting on September 30 when differences emerged on the details of the arrangement.
Centre will now hold an informal meeting with state finance ministers on November 20 to find a “political solution” on the dual control issue, Jaitley said.
“In order to resolve it we will have an informal meeting of the ministers, why I am saying informal meeting because it will be without officers, in order to find a political solution to this problem on November 20 and we will try and thrash out solution on November 20 between these options or maybe a hybrid option of this. But whatever option is we don’t want to take it in a hurry because it has to be a well thought out decision because administratively any mistake on this front could be chaotic. So we are going slowly and systematically on this,” he said.
He added that there has to be cross empowerment with a defined jurisdiction and “functionally, we can’t have two competing assessing authorities.”
The slugfest between Centre and states is about who will gain control how much control over the taxpayer base of VAT, excise and service tax. According to figures shared by the Centre with the states, the likely taxpayer base in GST would be 107 lakh, of which states account for 67 per cent and Centre is likely to account for 33 per cent. There are around 81.4 lakh VAT dealers, of which 66.5 lakh are active. For service tax, there are 38 lakhs assessees, of which 26 lakh are active, while there are around 4,00,000 assessees for excise. Around 4,00,000 taxpayers are common to the Centre and the states.
“This is like a turf battle. There were apprehensions among some states that this is Centre’s way of entering the backyard of states. We need to go back to basics and understand each other’s position. This is an administrative issue and not a dealbreaker. Hopefully a consensus will emerge by next meeting on November 24-25,” Jammu & Kashmir’s finance minister Haseeb Drabu said.
The vertical division involves division of entire taxpayer base between the Centre and states in a particular ratio for three years for all purposes including audit. The possible division between the Centre and the states could be 50:50 or 40:60 or a mirror image approach in which if 60 per cent of taxpayers below the threshold of Rs 1.5 crore were allocated to states, then 60 per cent of taxpayers above the threshold would be allocated to the Centre. It was proposed that the arrangement could be switched every three years.
In the horizontal division, the taxpayers will be divided based on turnover. Taxpayers below Rs 1.5 crore turnover should be administered only by states and those above
Rs 1.5 crore should be administered by the Centre and the states with cross empowerment. The biggest disadvantage of such an option is that it will be highly skewed as 93 per cent of the service taxpayers and 85 per cent of VAT assessees have turnover below Rs 1.5 crore, officials said.
The government is, however, moving ahead on framing the Draft SGST, CGST, IGST and compensation bills which are likely to be decided by November 15 and will be taken up for discussion in the next GST Council meeting on November 24-25.
When asked if the bills relating to GST will come for passage in the Winter Session of Parliament, Jaitley said, “That’s the effort. I am endeavouring to do that. In August, when we passed the Constitution amendment, it appeared too challenging because the time was very short. As of today, I am more confident …most of the decisions have been taken. Only one key decision remains.”
The GST Council in its first meeting had decided to fix the exemption limit for the indirect tax at Rs 10 lakh for Northeastern states and smaller states and Rs 20 lakh for other states. The council had also decided that states will have administrative control over assessees with annual turnover of less than Rs 1.5 crore and for turnover over Rs 1.5 crore, there will be jurisdictional assessment by either states or Centre but no dual control.
In the second meeting, issues had cropped up regarding the administrative control over service tax assessees.