Ahead of the crucial two-day meeting of the GST Council from Thursday, the Centre and States are trying to work out alternative options to sort out the contentious issues of administrative control and rates of tax.
Sources indicated that States are keen to first address the issue of administrative control over small businesses and service tax assessees before moving on to a decision on the rate structure.
“Various alternatives including more powers to States through scrutiny and audit are being considered or alternatively cross empowerment above a certain threshold. It is unlikely that a decision on the rate structure can be taken before this issue is resolved,” said an official familiar with the development.
The Finance Ministry had initially proposed that the existing service tax asseesees would be under the administrative control of the Centre as States did not have expertise in the tax. Small businesses with a turnover up to ₹1.5 crore annually would be with the States while those above the threshold would be under control of both the Centre and States.
However, States called for re-opening of the issue at the last meeting of the GST Council on October 19.
“There is no deal breaker. A resolution on all issues is on the cards and the objective is that all issues should be decided by consensus and not voting,” said a State Finance Minister, stressing that States too are keen to roll out GST from April 1, 2017.
Meanwhile, States are also pitched for other options to fund the compensation for losses arising out of GST such as higher market borrowings.
“The question is whether a cess can be used as a mechanism for funding the compensation? A number of States as well as industry associations have pitched against this but a higher tax rate may also not be the best solution,” noted another State Finance Minister.
The Finance Ministry had proposed a four-rate structure for GST of 6 per cent, 12 per cent, 18 per cent and 26 per cent. It had also suggested a cess on sin goods and to promote clean energy, proceeds of which would be used to fund the compensation to States for revenue loss.
Jaitley briefedMeanwhile, on Wednesday senior Finance Ministry officials also briefed Finance Minister Arun Jaitley, who chairs the GST Council on these issues.
The Centre wants to finalise the GST rate structure during this meeting of the GST Council, which will then meet again on November 9 and 10 to discuss the draft legislations in time for the Winter Session of Parliament that starts on November 16.
Advancement of BudgetBoth the Centre and the States are also conscious of the advancement of the Budget and its impact on the GST timeline.
“With the Union Budget to be presented in early February, ideally all issues must be resolved by this month. Revenue estimates as well as tax policy will have to be based on the GST structure,” said a senior Finance Ministry official.
States too are concerned that if deliberations on GST are not concluded in time, the tax roll-out may have to be deferred to the middle of 2017.