Tax Experts react to GST Council's consensus on threshold, dual control & compensation
The Govt. is going all guns blazing to meet the rollout date of April 1, 2017 for the most highly anticipated indirect tax reform since independence. The GST Council concluded its first meeting on Friday last week, reaching a consensus on the exemption threshold, dual control between Centre & States, treatment of Cesses, compensation and revenue projection.
Read below what Tax Experts have to say on this significant development.
“Things happen only when they are destined to happen. All these years what was baffling was as to why GST was delayed? Alas! What is baffling now is as to why is GST pushed at this speed?
The take home is clear. Inspite of irreconcilable political differences and mis-matching governments at the Centre and the States, sensible Economic Will has prevailed over all of them to reach this convergence. The first test therefore gets passed.
GST Council is a new experiment with a Constitutional status and clothing. It has delivered its first set of decisions quite swiftly and one need not be surprised since futile restlessness and worthless perspiration is finally giving way to a working arrangement. With a uniform Central levy in place for over seven decades alignment by the States though may be slow and time consuming, is not impossible and definitely not as impossible as solving an inter-state water dispute.
The formation of the GST Council is a triumphant moment in the Constitutional History of India as it is the first recognised body expected to espouse true fiscal federalism.
If this model succeeds it can as well be replicated in other areas of over-lapping conflicts creating Centre-State stress and strains.
India is turning into a matured democracy and this is one such defining moment. One can be spiteful and condemning in political platforms yet concede silently towards a unified economic India. This is one such moment. Miles to go, yet a good start.
The focus now has to be in aligning the officers and field formations of both Centre and State and bring them on the same page with focused priorities of execution so that they remain facilitators to the trade instead of destroyers.”
"It is with commendable speed that the Council is closing crucial issues like threshold and the hotly debated topic of dual control. As regards Service Tax assesses being administered till State GST officers are trained, is acceptable considering the States have no prior experience with regard to Service Tax. What is unclear is that, new assesses may be divided between States and Union and the basis of allocation should be spelt out clearly.
As regards lower thresholds for North East States, the approach is correct and reasonable.
What the Union Government ideally should now plan for is how to utilize the talent pool available on the Indirect Tax side bearing in mind that this co-operative fiscal regime. For the Trade and Industry, October-March 2017 would be interesting with lots of twists and turns. The best solution is to be updated and be engaged all the time."
"What is interesting is that for GST on services centre will have administrative control irrespective of threshold atleast in the initial years till States are trained to handle services. This may be a good news for industry as many were worried as to how States will handle complexity of services. However, in my understanding this may mean dual control for companies which have both services and goods supplies."
"The proposition to avoid dual control over assessees for assessment is a surely welcome. This would harness administrative efficiency as well as ease of undertaking compliance for the businesses. Retention of administrative control over existing Service Tax assessees by Central authorities highlights an open mindset to facilitate smooth transition to GST. This will allow some time to the State authorities to gear up administratively for taxation of services given short time for internal trainings and with so much else to do. The current announcement however only address part of the dual control issue. Clarity is still awaited in respect of clients with mixed profile of businesses.
A higher threshold of INR 20 lakhs (as against earlier proposed limit of INR 10 Lakhs) is also a good news. Many small scale traders and service providers would be saved from undertaking GST compliances and it also reduces a substantial burden for tax authorities to assess small time dealers. The threshold limits for composition dealers, which are not yet announced, will be important to understand to overall impact on the small scale businesses.
Consistent demand of industry for subsumation of all Cesses under GST receiving GST Council’s consent is also encouraging. This would provide better uniformity of taxes to the businesses.
Major item on agenda for GST Council’s next meeting is finalizing draft rules on exemptions. This would be a critical issue as it may decide the fate of existing incentives and exemptions in various States and also provide clarity on various items to be kept outside the tax net.
Eyes would be set on Council’s meeting proposed mid-October when discussion on GST rates and slabs is on agenda. Decision on rates is a big missing link in India Inc’s ability to quantify the potential impact of GST on their businesses and accordingly revisit their pricing structure and distribution costs."
"An important milestone has been crossed today as the GST Council, post their first meeting, has managed to forge together a consensus on the critical aspect of GST exemption threshold.
Another welcome clarity that has emerged is that all cesses will get subsumed in GST – while this is heartening to hear, the implementation of this has to be cautiously undertaken. Especially, attention needs to be paid to ensure subsumation of even ‘lesser-known’ cesses like the cess levied under the Building and Other Construction Workers Welfare Cess Act, 1996 (commonly known as “Building Cess” / “labour cess”), water cess, Oil cess, cesses levied by States etc.
On the contentious issue of ‘dual-control’, an interesting compromise seems to have been reached. While the state tax officials will have sole power over assessees up to Rs 1.5 crore of annual turnover in case of goods, in case of services, the power for assessment of the 11 lakh service tax assessees who are currently assessed by Centre, would remain with the center irrespective of the threshold. New assessees which would be added to the list would be divided between the Centre and states.
It would be interesting to see how such a complex formula actually works on ground. In the haste to usher in GST, the Government has already stumbled once while notifying the Constitutional Amendment Act (in as much as it has raised questions of propriety of levy of excise duty, VAT etc post 16.9.2016) – one hopes that was an aberration and all the subsequent steps would be undertaken in a failsafe manner. All said and done, the Government needs to be applauded for its zeal and persistence apropos GST."
alongwith Jigar S. Doshi (Partner)
"The GST ‘war room’ setup for GST implementation has been lately working with army precision by ensuring that milestone in the GST process are achieved well before or at least on time. The time spent on parliamentary procedure was never in control of the government, but post that, the speed with which government has moved, has been nothing less than astounding. The task of getting presidential assent to formation of GST council which otherwise could have taken 60 days, got done in 8 days. That says it all.
The first GST council meeting which was held on 22-23 September 2016 took some extremely bold decisions such as increasing the threshold from 10 lakhs (5 Lakhs in NE States) to 20 Lakhs (10 Lakhs in NE States), subsuming of cesses (SBC/ KKC) into GST, restricting the compounding scheme to traders only, Assessee Jurisdiction, allocating FY 2015-16 as the base year for compensation to States, approving a strict time table for completion of legislative work along with others.
These decisions have been termed ‘bold’ because the repercussion it may have on the central government themselves. For instance, increasing the threshold limit will negatively impact government’s tax revenues as they will not charge GST from all those businesses within the category of 10-20 lakhs turnover. Similarly, subsuming cesses will also go on to reduce tax revenues of the government. Nonetheless, keeping aside governments tax perspective, these decisions were taken in favour of consumer and industry at large.
One may assume that the decisions are business friendly, but the reduced tax base could have a negative impact on GST RNR rate, which may eventually increase to compensate for the reduced tax base. The next meeting of GST Council is scheduled on 30th September, 2016 with an agenda to decide on the draft rules and exemptions to be granted under GST regime in India. Also, most deliberated topic of GST Rate and Tax slabs would be taken up during the three-day GST council meet to be schedule on 17th, 18th and 19th October 2016. In a nutshell, industry should expect the roller coaster ride and everyday needs to be treated as an “Alert day” and get themselves in top gear to get GST ready."
