Tax Experts react to GST rollout deferral & consensus on ‘dual control’
The GST Council achieved a breakthrough yesterday, when the Centre & the States arrived at a consensus over the seemingly unsurmountable issue of dual control. Terming it as a “significant headway”, FM Arun Jaitley explained the proposed tax administration, whereby 90% of all taxpayers with turnover less than Rs. 1.5 Cr will be assessed for scrutiny & audit by the States, the remaining 10% by the Centre. Taxpayers above said limit shall be assessed equally by Centre & States.
FM Arun Jaitley also indicated a “realistic” timeline of July 1, 2017 for rollout of one of India’s most comprehensive tax reforms since Independence.
Read below what Tax Experts have to say about this significant development.
After the continued deadlock in the last four meetings over dual control issue, it appears that the majority of council members are now in agreement on this issue. while it needs to be seen as to what basis would be adopted to exercise the jurisdiction in the proposed split by states and centre, it is certain that 1st April 2017 deadline would be missed. With FM’s indication of a revised implementation date, industry players would now need to revisit their GST transition strategy with a backup plan for few months rolling over beyond 1 April 2017 resulting in dual compliance. It could also pose certain additional challenges for many organized players with regard to their year-end activities including areas such as inventory planning, budgeting, working capital, etc. which were aligned to a timely GST rollout.
and Jigar Doshi, Partner
The clarity of shift in rollout date from April to Jul 2017 is a welcome move. Although the time span of shift may not be huge in the overall context of GST implementation, but putting an end to the speculation of change in roll out date will certainly help many organizations to planning their GST transition properly. With Budget being very close, tax authorities will now have to specially chart out budgets for Central and State taxes in lieu of this shift.
As per the consensus, Centre and States have distributed control over assessee’s in 10:90 ratio for those below 1.5 Cr. turnover category and in 50:50 ratio for those above 1.5 Cr. turnover category. However it is still uncertain, what will serve as the computerized logic base which the government will apply to distribute the assessee’s in 10:90 and 50:50 within the ascertained turnover brackets.
On the positive side, consensus on cross empowerment is highly appreciated. Cross empowerment between State and central authorities to adjudicate matter of State, Central and Integrated GST by one adjudicating assessing officer shall certainly increase the ease of assessments for an assessee.
The issue of keeping territorial waters (upto 12 nautical miles) within central governments purview while empowering the states to collect taxes for economic activities in these territorial waters, could very well lead to inter-state tax collection disputes in the future. Without any clear demarcation of territorial waters, States may eventually start making common claims on revenues earned from these territorial waters. Thus it would be prudent if the government clearly demarcates territorial waters attached to the State to avoid disputes.
On expected lines ... what was seemingly an impossible target date, the GST Council has now sought to formally postpone the GST implementation date to July 1, ‘as of now’.
Service tax assessments of 90% done by State Govt. could also be subjected to issues raised by Central Govt. in the remaining 10% assessments and vice versa. Thus, an issue not picked up by one Govt. but picked up by the other, could subsequently be raised and may thus delay finality in tax administration. What has been agreed has all the trappings of dual control – cross empowerment, with regards to CGST, SGST and IGST, along with powers to undertake enforcement action based on information available with any of the Government, leaves a GST taxpayer unequivocally at the mercy of both the administrations.
Also use of computer programming for determination as to which taxpayer has the Central Govt. as its GST assessor and which has to deal with the State Govt. begs the question as to whether this draw of lots would be done annually or only once? Even if lottery system is adopted, say every three years, new issues in closed assessments of the past years can be re-opened under the statute of limitations. Can keep businesses occupied with satisfying unending queries of both Govt.’s.
Conflicting interpretation of Place of supply rules by 2 States is sought to be resolved by Central Government – possibly a recipe fraught with becoming a political issue.
Permitting State to levy SGST on economic activity carried out within the 12 nautical miles of territorial waters (though levy to be administered by the Centre) is a good resolution and ensures uniform interpretation of GST law in the domain which has historically been administered by Central’s customs administration.
andL. Badri Narayanan, Partner
The GST Council has finally emerged with a solution for an important issue of contention, i.e. dual control. Breaking the stalemate, the Council has concluded that the taxpayers having a GST turnover of above Rs. 1.5. crores will be assessed by the states and the Centre on a 50:50 ratio. And for those having a GST turnover below Rs. 1.5 crores, the assessment will be on a 90:10 ratio between states and the Centre. Though this decision will prove to be relief for taxpayers, with them being required to deal with only one authority, the question now lies as to how this sharing of administration is going to be effected. This topic is going to be a subject of further discussion in the council once the law has been drafted accordingly. The criteria or circumstances that maybe considered for such division of administration remains ambiguous and can be the type of supply or revenue among many. Secondly, the current practice of allowing States to tax transactions within the 12 nautical miles remains an issue with numerous litigations. Therefore, continuing with the same shows potential for such disputes to continue even in the future.
By reaching consensus on the contentious issue of dual control, the council has made a significant step towards the implementation of GST. Administrative control with a single authority (either Center or State) would ensure ease of compliances and assessment for the assesses. The decision on deferment of GST to July is pragmatic. A well thought through implementation post meticulous discussion on the draft legislations is far more desirable than a premature rushed through roll out. Even to achieve the deferred date, finalization and publication of GST laws without further delay would be important for India Inc. to effectively prepare for migration to the new regime.
Next critical aspects to be watched out is GST Council’s discussion on supporting GST legislations, publication of rules and GST rates. Clarity on these aspects is critical for India Inc to analyze GST impact on their business to realign their systems, processes, operations, pricing structures and logistics by the go live date.
GST Council today has been very fruitful which is indeed an excellent outcome. The issue of dual control issue which was a major impediment looks resolved, with above 1.5 crore shared 50:50 by Centre and States, below 1.5 crores 90:10 in favour of States. In case of territorial waters Centre will delegate State to tax up to 12 nautical miles as it is today, also in case of IGST administration Centre will delegate to States as per dual empowerment consensus. The stage is now set for introduction of GST Bills in Parliament and State Assemblies in February/ March post the next GST Council meeting on Feb 18. Also its now clear that new date for GST implementation will be July 1, 2017 which gives some time for industry to prepare. Its indeed a very positive development and takes GST journey forward. What remains now are the rates for various goods and services which I am sure will be decided in March 2017.
Considering the task ahead, the date of 1 July 2017 appears realistic. While consensus on Dual Control for assesses below 1.5 Crores may not pose such scale problems , it needs to be articulated in the law, whether the assesses above 1.5 crores, could be picked up by CAS for one year by States and one year by Centre. In case of such alternate selection, the approaches to crucial issues may change, which consequently may lead to litigation. Additionally there could be difference of opinion between two authorities for different years which may open up possibility of re-opening of the past years.
The amended draft law needs to provide certainty when other States may also contest issues earlier decided by a Central assessment or vice versa. Overall it is heartening to see the date of 1 July.
The deferral to a “realistic timeline” of July, 2017 was expected, although many felt it would be announced in the Budget exercise on 1st February, 2017. The formulation on the sharing of powers is getting more complex. One hopes that all the ratios for power sharing (10:90 or 50:50) do not dilute the earlier assurance that each assesse will only be dealing with one assessing officer. The issues of taxing jurisdiction within 12 nautical miles, and, the Centre taking over conflict assessments qua place of supply are not simple issues and there will undoubtedly be many more complication to navigate on these issue. While the focus on transitioning to GST seems like a consensual and committed endeavour of the Centre and the States, the ever escalating issues between them raise some apprehensions as to the final shape of GST and the timelines. If 1st July, 2017, is the realistic kick off date it is critical that all issues of law and procedure are fully finalised and made public latest by 1st March, 2017 to give industries at least a four month window (which many may say is a tad short) to absorb and comply with this transformational tax. Any shorter time frame may have some serious consequences for all concerned.
