New Delhi, January 16, 2017

Now the entire tax base will be shared between the Centre and states in a pre-determined ratio

In a significant breakthrough, the GST Council on Monday broke a deadlock on contentious issues of administration over assesses, the right of coastal states to tax economic activities within 12 nautical miles inside sea and broadly agreed to roll out the goods and services tax from July one, 2017 instead of earlier planned April one.

Against the earlier proposals of reserving all administration of assessees up to Rs 1.5 crore of annual turnover with states – technically called horizontal model-- and another of allowing both the Centre and states to have such control—technically called cross empowerment-- the Council decided to blend the two.

Now the entire tax base will be shared between the Centre and states in a pre-determined ratio, union finance minister Arun Jaitley, who is the chair of the Council, told a press conference after the meeting.

The Centre and states agreed that the latter will have power to administer 90 per cent of assessees up to annual turnover of Rs 1.5 crore, while the former will have such power to audit, send notices and scruntinize over 10 per cent of the tax base.

Only West Bengal finance minister Amit Mitra did not agree to this proposal, Jaitley said.

Mitra told reporters later that this agreement pertains to services only, while states will have full control over assessees up to Rs 1.5 crore of turnover.

Those assessees which have over Rs 1.5 crore of turnover would be administratively controlled by the Centre and states in the ratio of 50:50.

However, Jaitley clarified that no assesse would be controlled by two authorities and there would be computer-based enforcement with both the Centre and states.

Those assessees who fall under integrated GST (IGST), or in simple words involved in the movement of goods and services between states will also be shared between the union government and states in a manner described above.

However, the Centre will retain the power to collect IGST.

The Centre also gave the right to tax economic activities within 12 nautical miles to coastal states even as these will continue to be considered union territories.

Under the present system as well, the states have the right to tax these activities.

The next meeting of the Council has been convened over a month after on February 18. By the time, the exact changes of various Bills—Compensation, IGST, CGST, SGST—will be worked out. After that, these could be passed by Parliament and respective legislative assemblies.

Meanwhile, rules and procedures and segment-wise GST rates will take till March to complete, pushing the introduction of GST from July one.  This was a broad agreement in the GST Council, Jaitley said.

He said being a transactional tax, GST could come up anytime in a year and trade and industry would also get time to prepare for it.

[The Business Standard]