Tussle Between Yours and Ours GST...

GST Council meets in shadow of demonetisation 

Deadlock continued between the Centre and the states on Sunday at the 6th meeting here of the Goods and Services Tax (GST) Council on the vexed issue of "cross empowerment", or dual control of assessees. The Council's two-day meeting commenced earlier in the day in the shadow of the November 8 demonetisation, whose fallout has put a serious question mark on implementing GST by the central government's targeted deadline of April 1, next year. 

The meet was also expected to finalise three legislations -- Central GST, Integrated GST and the Compensation law -- after which these will be placed in Parliament. 

The Council's fifth meeting here earlier this month also failed to break the deadlock between the Centre and the states on the vexed issue of dual control on assessees in the proposed pan-India indirect tax regime. 

At the meeting then, the states continued to highlight the impact of the November 8 demonetisation of high-value currency on their respective economies to underline that it is not the appropriate time to implement GST that, they aver, could have a destabilising effect on the economy. 

Besides, the Centre continues to be intransigent on the issue of jurisdiction over assessees, the states maintain. 

Calling demonetisation "a big magnum-sized tsunami", West Bengal Finance Minister Amit Mitra earlier this week said India's gross domestic product (GDP) in the current fiscal (2016-17) will take a huge hit on its account. 

"From an estimate that I have, the growth rate in aggregate will fall over 3 per cent and arrive at 4.3 per cent," he told a TV news channel. 

"This means a loss of Rs 4.7 lakh crore of GDP, this will be extinguished. This is in the worst case scenario... the best case scenario is loss of Rs 3 lakh crore," Mitra added. 

Mitra, who is Chairman of the Empowered Committee of State Finance Ministers and member of the GST Council, also said that the postponement of the Goods and Services Tax regime could be an option to stabilise the economy badly hit due to demonetisation. 

"Should we rethink of stabilising the economy from this big hit resulting from demonetisation and then go for GST? Do we take the risk of a second whammy at this stage," he asked. 

Kerala Finance Minister Thomas Isaac said on Friday that implementing GST by the April 1, 2017, deadline planned by the Union government appears to be unlikely. 

"Demonetisation has indeed vitiated the whole atmosphere," Isaac, who is a member of the GST Council, told BTVi channel in an interview. 

"Discussions in the GST Council have been cordial, in a spirit of consensus and Parliament had passed the Bill unanimously. Now there is no such general atmosphere, Parliament is divided," he said, referring to the almost continuous disruption of proceedings being witnessed during the winter session on the demonetisation issue. 

"Demonetisation is a big strike on the revenues of the states, and in Kerala, we are estimating our revenues to decline by 40 per cent from impact of demonetrisation," he added. 

Isaac also said that in a situation where the states are going to lose the right to tax when GST is implemented, and had acceeded to the Centre on almost all issues, "the Centre will have to take one step back from the position they have adopted" on the only remaining issue of "cross-empowerment" concerning  jurisdiction over assessees.

"It can't be a one-way traffic. Why can't the Centre accomodate on the question of how GST should be administered," he asked. 

With five meetings of the GST Council having been held, the issue of dual control or who will exercise control over GST assessees -- the Centre or the states -- remains critical. 

"It is unlikely that we will decide on the issue when we meet on (December) 11th and 12th," said Isaac. 

The states want exclusive control on businesses with turnover below Rs 1.5 crore (the current threshold for central excise), including the service taxpayers. 

The target rollout of GST will depend on the passage of the Central GST and the Integrated GST (IGST) bills in Parliament and the state GST bills by the respective states. 

Parliament and state assemblies have the right to accept, or reject, the Council's recommendations in their GST Bills. 

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Options before government if GST not implemented by September 2017 

Even as Arun Jaitley on Sunday said that the last possible day to pass GST is September 16, many are discussing of what would happen in a worst case scenario, if government were to miss even this deadline? 

The government is required to implement the Goods and Services Tax (GST) by September 16, or there would be no tax law altogether after that since the validity of the recently passed GST bill lapses by then, point out experts. 

The Parliamentary logjam, with the opposition being relentless in its attack on demonetisation, has impacted government’s planned timeline on GST. “If the GST doesn't come into force by September 16, there is one view that existing specified tax legislations would cease to have effect. Hence, the government is working towards ensuring that GST is implemented before 16th September. It needs to be seen that if the same is not achieved whether the Government has an alternative plan,” said Dharmesh Panchal, India - West Indirect Tax leader, PwC. Experts say that the government may not be in a position to levy any indirect taxes as the current taxes would cease to exist while its replacement GST would not have come into force. 

“It is imperative that the GST is implemented at the earliest, else post mid-Sept 2017 there would be an issue that in absence of legislative backing, taxes could not be levied. The issues arising from demonetisation should be short lived, and in the long term it should act as an enabler for the GST regime with more and more businesses becoming part of the formal supply chain, thereby helping government achieve the twin objectives of bringing in more transparency and increase the overall tax base,” said Vikas Vasal, partner, Grant Thornton India. 

Although there could be a way around this, say industry trackers. Theoretically, point out experts, there are two ways if the government is unable to implement GST by Sept 16. It will have to go back to Parliament for status quo ante or seek a presidential extension. In both cases the government will have to prove beyond doubt that there is a “genuine problem” in implementing the GST. “This (two ways to postpone GST) is just an interpretation of how the GST rules read. This is just in theory,” a tax lawyer emphasised. Industry trackers also point out that many companies especially the smaller ones are still not ready for GST. 

“Companies, mainly medium and small ones, are tackling the impact their businesses have faced due to demonetisation. Even the biggest of the companies have put GST on their low priority list. Everyone is expecting that it (GST) would be postponed,” said a senior tax expert. 

Industry trackers point out that many medium and small industries may not be able to comply with the GST even by next year. “Mid and small size companies in sectors like transport, logistics, chemical manufacturing, salt manufacturing, iron and steel manufacturing are finding it hard to comply with GST,” the tax expert pointed out. 

Many big companies and conglomerates were helping vendors, suppliers and distributors to be GST ready before the demonetisation, say experts. Some of these large companies have also provided specialised chartered accountants and technology experts to their vendors, distributors and suppliers. 

However, many small companies that do not directly deal with big companies may have to handle the tax complexity and technology part all by themselves. 

“The dilemma the government faces is that whether to go ahead with GST and deal with the further impact on the economic growth or postpone the GST and tackle the blushes,” a tax law expert said.  

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GST Council to seek solution to dual control issue on Dec 22-23 

With the two-day meeting of the GST Council scheduled to end on Monday being cut short half-way, hopes of meeting the Centre's targeted GST implementation deadline of April 1, 2017, receded further in a situation of political confrontation unleashed by its demonetisation measure. 

The Goods and Services Tax Council, chaired by Union Finance Minister Arun Jaitley, was originally slated to meet here on December 11-12 to sort out the vexed issue of "cross empowerment", or dual control of assessees under the proposed pan-India indirect tax regime. The solution had eluded a consensus over five previous meetings of the GST Council. 

The meeting was also expected to finalise three legislations -- Central GST, Integrated GST and the Compensation law -- with the intent of placing these in Parliament during its ongoing Winter Session that ends on December 16. 

Deadlock continued on the issue of dual control between the Centre and the states on Sunday, while the next meeting of the Council has been fixed for December 22 and 23, Jaitley told reporters here after the meeting. 

"There is one section which needs to be redrafted... one cross empowerment issue which we are leaving aside and therefore the discussion on the legislation and its approval of each section is moving satisfactorily. And hopefully in the next meeting we would be able to clear it," he said. 

Jaitley said the issue of dual control, or who will exercise control over GST assessees -- the Centre or the states, was not taken up at the sixth meeting. 

"Well, that issue did not come up for discussion today because today's (Sunday) agenda was taken up exclusively by the legislation and that's an issue which is still flagged and still pending. I have various options ready for discussion and as and when it is discussed we will place those options before the council," he said referring to the jurisdiction issue. 

                                    From Sources:-