Finance minister Arun Jaitley on Friday refused to “bind” himself to a timeline on the goods and services tax (GST), raising concerns that he wasn’t as optimistic about implementing it by September 2017.
“(But) we are trying to implement it as fast as possible. I think I am making reasonable headway,” he told mediapersons at the end of the seventh GST Council meeting on Friday.
It is believed that differences between the central government and the states over compensation and dual control may be denting Jaitley’s confidence on implementing the new indirect tax by September.
The two-day meeting of the GST council, the highest decision-making body of the proposed tax with Jaitley as its head and all state finance ministers as members, saw the emergence of a consensus on two important legislations required to be passed by the Centre and the states – the CGST and SGST. While CGST is the tax imposed by the central government on the intra-state supply of goods and services, SGST is charged by states.
Since both the legislations have been approved by the GST council, they will now be tabled before state assemblies.
The council also discussed the GST compensation law, which will be vetted by the law ministry before getting the council’s final approval. Though it was already discussed and agreed upon, the demonetisation initiative has reportedly spurred the states to demand changes in the law – including bi-monthly payment of compensation instead of quarterly.
At a previous meeting in October, the council had already fixed the compensation meant to be given to the states for the first five years after the GST is implemented. With 2015-2016 fixed as the base year, the likely compensation for states was based on a projected 14% revenue growth.
The funds for this compensation are supposed to be drawn from the cess imposed by the Centre on luxury and “sin” goods.
However, the after-effects of demonetisation have led most states to believe that the Centre’s computation of the cess may not be sufficient for compensating the revenue loss.
The contentious issue of dual control, which will decide whether a business is taxed by the Centre or the state, also remains unresolved. “We will meet on January 3-4 to discuss dual control,” said revenue secretary Hasmukh Adhia.
At the heart of this debate are states such as West Bengal and Tamil Nadu, which want control over businesses with an annual turnover of less than `1.5 crore. But the Centre has refused to concede, stating that taking such a step would leave it with a very small pool of taxpayers.
Sources in the GST council said the speed at arriving at a consensus on this matter would decide how soon the government can implement the new tax regime. While meeting the April 2017 deadline now appears virtually impossible, the trust deficit created by demonetisation is likely to force further delays in ironing out differences on dual control and compensation.
Experts, however, remain cautiously optimistic. “The most contentious issue of dual control will be discussed at the next meeting in January. If they reach a consensus then, the GST laws can be passed in the budget session,” said Pratik Jain, partner and leader, indirect tax, PricewaterhouseCoopers India.