Consensus eludes GST Council meet on Day 1

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So far, no voting has been conducted on any issue in the GST Council meetings. The slugfest between Centre and states is about who will control the taxpayer base of VAT, excise and service tax and in what measure after the rollout of the proposed indirect tax regime. The resolution of the issue of dual control will be crucial for the targeted rollout of the indirect tax regime by April 1, 2017.

Though there was discussion on the other listed agenda item of draft laws but it remained incomplete as only two draft laws pertaining to Central GST (CGST) and State GST (SGST) were discussed. Only those aspects of the draft laws that do not involve sharing of administrative powers between the Centre and the states were discussed in the meeting, state government officials said.

“We discussed the draft bills minus the IGST bill, because this is dependent on the dual control,” Delhi’s finance minister Manish Sisodia said, adding that the April 1, 2017 deadline is achievable.

Apart from the GST-related issues, states and Centre agreed to discuss the impact of currency withdrawal on states’ finances and compensation for the related losses in its meeting on Saturday.

“How to compensate the loss to states due to demonitisation will be discussed by GST council tomorrow,” Kerala’s finance minister Thomas Isaac said. Some state officials also raised apprehensions if Council members will be able to finalise the draft laws on Saturday, given that the issue of demonetisation will come up for discussion.

Highlighting the states’ stance on the issue of dual control, Isaac said no consensus is possible till the Centre is not willing to compromise. “It is still possible to meet the April 1 deadline for rollout of GST if compromise is reached on administrative aspects of GST. We have already conceded on too many aspects. We cannot compromise or concede on this issue,” he said.

The GST Council was earlier discussing five proposals for dual control but in its meeting on November 4 had arrived at an option of two proposals — horizontal division and vertical division.

States are favouring a horizontal division of tax assessees, while Centre prefers to have a vertical split. In vertical division, the possible division of taxpayers could be 50:50 or 40:60 or a mirror image approach in which if 60 per cent of taxpayers below Rs 1.5 crore mark were allocated to states, then 60 per cent of taxpayers above the threshold would be allocated to the Centre. It has been proposed that the arrangement could be switched every three years.

In the horizontal division, 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.