Union Finance Minister Arun Jaitley said last week that the government and states were racing against time to meet the proposed April 1 deadline for the roll out of the Goods and Services Tax (GST). His remarks reflected the challenges that have emerged over the past few weeks. At the last meeting of the GST Council, 10 of the 11 chapters of the integrated GST law were approved, but a binding solution to contentious issues such as dual control on tax administration and cross empowerment and the issue of powers to levy taxes in territorial waters proved to be elusive. In the absence of a consensus on these, it is virtually impossible to implement the law.
Many states have been holding out on the issue of administrative control over taxpayers with an annual turnover of less than Rs 1.5 lakh crore — a threshold which accounts for the bulk of the tax-payer base. The Union government has not ceded ground so far on this: It reckons it would be left with a much lower tax-payer base. The industry is also queering the pitch, pointing out that they will have to deal with dual authorities or agencies for firms and businesses that have inter-state transactions and linkages. Financial services, especially banking, telecom and the information technology sectors, are cases in point. For instance, banks have indicated they may have to create profit and loss accounts state-wise in a regime of dual control. States argue that their concerns are legitimate from a revenue perspective. On the face of it, the states’s claim for administrative control over taxpayers with a turnover of below Rs 1.5 crore may not be unreasonable considering that the tax administration of states may be better equipped to levy and collect taxes from this segment. The Narendra Modi government could work out a grand bargain with the states: It could propose a central registration for select sectors such as banking with the levy and collection being the responsibility of the Centre, which then shares it with states. That may act as an incentive to state governments, which are battling economic slowdown and the disruption caused by demonetisation, to get the law going.
Jaitley has said the government will strive for a consensus: It has consciously avoided a voting in the GST Council to build a healthy precedent. That’s welcome. But if India has to make the transition towards a common market especially at a time of great economic uncertainty, the Centre will need to be more magnanimous.
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