Positive signals from the GST Council

Background: Goods and Services Tax (GST), GST Council, 122nd Constitution Amendment Bill, Central GST, State GST, Integrated GST, Value-Added Tax (VAT).

  •  Within a fortnight of President Pranab Mukherjee signing off on the 122nd Constitution Amendment Bill to introduce the GST regime, work on the next steps has begun.
  • The GST Council had its first meeting on September 22-23, flagging off the process of determining the nitty-gritty of the new indirect tax system and resolving differences on crucial first-principle issues.
  • Time is of the essence, as just six months remain for the April 1 2017 deadline that the Centre has set for ringing in the GST.
  • Apart from agreeing on the rules and timetable for its meetings, the Council reached a consensus on the threshold turnover for a business to be covered by the GST, Rs.20 lakh, which ensures that the new tax will not be a compliance burden for small retailers and traders. It has also agreed on the draft compensation formula for States’ revenue losses and accepted industry’s rationale to subsume myriad cess levies in the GST.
  • An important signal at this juncture is the Centre’s decision to let go of the Central Board of Excise and Customs’s proposal to create dual control over the assessment of businesses with an annual turnover of up to Rs.1.5 crore and give States that power.
  • This is important given the need to resolve more tangled Centre-State tax issues on the Council’s agenda quickly, if the model laws for Central, State and integrated GST are to be ready for Parliament’s winter session.
  • The Centre and the States appear to be informed by the roll-out experience of the VAT regime, and the States want to be on the same page through discussions and support one another rather than get divided along regional or party lines.
  • This bodes well for the GST, where every decision has to be taken by the Council based on a majority view: the States have two-thirds voting power and the Centre has one-third. It is to be hoped that this accommodative spirit of cooperative federalism prevails.

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