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.
**********************
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.
**********************
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.
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