India GST rollout on July 1, consensus on dual control

Under the agreed model, all assessees with an annual turnover of Rs 1.5 crore or below will be split on a 90:10 ratio between the states and the Centre.

States would assess 90 percent of businesses with an annual turnover Rs 1.5 crore, while the Centre will assess the remaining 10 percent.

Businesses with a turnover of more than Rs 1.5 crore will be split equally with the states assessing 50 percent of such traders and the Centre the remaining 50 percent, Jaitley said.

“Intelligence-based enforcement powers will wrest between the Centre and the states,” he said.

The Council, headed by Jaitley, also hammered out a consensus on the thorny issue of taxation of goods moving through high seas.

Coastal states had demanded taxation rights over goods transported within 12 nautical miles of their respective geographical territories, while the draft IGST law has vested the taxation rights of goods transported through territorial waters with the Centre.

“As far as 12 nautical miles is concerned, it is part of the Union government territory.  But as per convention, the states will be empowered to collect tax on any economic activity in this territory. This decision has been taken after very wide consultation,” he said.

Jaitley also said that the power to levy and collect the IGST taxation is with the Centre, “but by a special provision in law, the states will also be cross-empowered in the same ratio of assessment.”

In the exercise of IGST, where there are contentious issues between states, those assessments will necessarily take place by the Centre, he said.

The issues agreed upon on Monday will now be incorporated in the draft IGST, CGST and SGST laws.

“The draft of these laws will now be firmed up and discussed during the next GST Council meeting on February 18,” Jaitley said. “Once those drafts are approved by the council, respective legislative bodies (the Parliament and state Assemblies) will take these for approval.”

Under GST, the states and the Centre will collect identical rates of taxes on goods and services. For instance, if 18 percent is the GST rate on a good, the states and the Centre will get 9 percent each called the CGST and SGST rates.

The Centre will also levy and collect the Integrated Goods and Services Tax (IGST) on all inter-State supply of goods and services.

The IGST mechanism has been designed to ensure seamless flow of input tax credit from one state to another.

The Council has already agreed on a four-slab structure –5, 12, 18 and 28 percent—along with a cess on luxury and `sin’ goods such as tobacco.

A bureaucrats’ panel (of states and the Centre) is working on “classification”—a comprehensive, if not exhaustive, list specifying the tax rate that each good and service will attract.

“The officials will start working out on the fitment of the rates on the various slabs,” Jaitley said.

“This exercise will take us well into the month of March. The broad view was that July 1 appears to be more realistic (date for rolling out GST). Since it is a transactional tax, it can be introduced at any time of the year,” he said.

After the rate classification, simulated dry runs on the tech backbone will be carried out ahead of GST’s implementation. Industry and trade will also have to be given adequate notice to prepare for the new system.

GST Network (GSTN), a special purpose vehicle (SPV), was set up as a private limited company in 2013 to create a robust IT backbone to enable real-time taxpayer registration, filing returns, handle invoices, execute inter-state tax settlements, and connect states for two-way data flow.

“All the ministers present agreed to the proposals except the West Bengal finance minister whose dissent was limited to the extent assessments for businesses with a turnover of below Rs 1.5 crore who wanted the ratio to split in 100:0 in favour of states instead of 90:10,” Jaitley said.

“All other proposals he also agreed,” he said.