GST: Centre may give more space to States on tax modalities

With just a little more than six months left for the targeted roll out of the goods and services tax (GST), the Centre has decided to adopt a multi-pronged strategy that includes giving more leeway to the States on working out tax modalities and in turn getting their support on acceptable tax rates.

“A rejig in GST rates later in 2017 and 2018 may be difficult with State elections and the run-up to the general election (2019). It would be ideal if a reasonable rate can be finalised now for next April,” said a source, noting that this would ensure that the inflationary impact would get absorbed in the initial year of GST roll out. “A reasonable rate of even 20 per cent would ensure that there is no need for any price control or anti-profiteering regulation that has been introduced in some countries to mitigate the impact of GST,” said a person familiar with the issue.

According to sources, apart from the rate of tax, the other sticking point is the issue of control over small businesses of annual turnover of less than ₹1.5 crore, which States want to single-handedly administer.

But, officials point out that this would effectively mean that 80-90 per cent of the services firms would be out of the control of the Centre and be administered by the States.

Revenue Secretary Hasmukh Adhia too had earlier said that a mechanism for cross empowerment to mitigate ill-effects of dual control would have to be worked out. Finance Minister Arun Jaitley had said that the proposed GST Council will take a final decision on all issues including the rates of tax, list of exemptions, threshold and control over small businesses.

While the Centre will have one-third voting power, States will have two-third voting power but the expectation is that decisions will be taken through a consensus.

To address these issues, the Finance Ministry is also set to call a fresh meeting of the Empowered Committee of State Finance Ministers later this month when the Monsoon Session of Parliament adjourns. “A meeting of the Empowered Committee of State Finance Ministers is imminent as they have to be formally briefed about the passage of the Constitution Amendment Bill. We also have to urge them to proceed as fast as possible on GST to ensure its timely rollout,” said a senior official close to the development.

States will be briefed to urgently ratify the Constitution Amendment Bill, an issue that the government is also working on with BJP-ruled States, as also for timely passage of the subsequent State GST law.