Dual Control is the Latest Roadblock Ahead of GST Council

The two-day GST Council meeting which was cut short half-way found a new hurdle to deal with. The council hopes of meeting the Centre's targeted GST implementation deadline of April 1, 2017, receded further in a situation of political confrontation unleashed by its demonetization measure.

NEW DELHI: The Goods and Services Tax Council, chaired by Union Finance Minister Arun Jaitley, was originally slated to meet here over Decemeber 11-12 to sort out the vexed issue of "cross empowerment", or dual control of assessees under the proposed pan-India indirect tax regime. The solution had eluded a consensus over five previous meetings of the GST Council.

The meeting was also expected to finalise three legislations -- Central GST, Integrated GST and the Compensation law -- with the intent of placing these in Parliament during its ongoing winter session that ends on December 16.

Deadlock continued on the issue of dual control between the Centre and the states on Sunday, while the next meeting of the Council has been fixed for December 22 and 23, Jaitley told reporters here after the meeting.

"There is one section which needs to be redrafted... one cross empowerment issue which we are leaving aside and therefore the discussion on the legislation and its approval of each section is moving satisfactorily. And hopefully in the next meeting we would be able to clear it," he said.

Jaitley said the issue of dual control, or who will exercise control over GST assessees -- the Centre or the states, was not taken up at the sixth meeting.

"Well, that issue did not come up for discussion today because today's (Sunday) agenda was taken up exclusively by the legislation and that's an issue which is still flagged and still pending. I have various options ready for discussion and as and when it is discussed we will place those options before the council," he said referring to the jurisdiction issue.

States, including Tamil Nadu, Kerala and Bihar, want exclusive control on businesses with turnover below Rs 1.5 crore (the current threshold for central excise), including the service taxpayers.

Jaitley said the Centre still stands by rollout target date of April 1 next year.

"I told you after the last meeting also our target is the 1st of April. The luxury of time is not available to us for the simple reason that if 1st April is the first possible day it can be implemented, then the last date also is constitutionally defined as 16th of September 2017," he said.

"So the discretion as to when to implement is only five months and 16 days and that's why we don't have the luxury of time because after five months the curtains will be down on the old taxation powers," he added.

With a serious question mark over the April 1 target now that the legislations cannot be ready for tabling in the winter session, the plan appears to be to have GST come into force by default when the time given by the constitutional amendment will automatically expire for roll out of the new indirect tax regime.

Kerala Finance Minister Thomas Isaac said on Friday that the Centre continues to be intransigent on dual control.

In an interview to BTVi channel, Isaac said that in a situation where the states are going to lose the right to tax when GST is implemented, and had acceeded to the Centre on almost all issues, "the Centre will have to take one step back from the position they have adopted" on the only remaining issue of "cross-empowerment" concerning jurisdiction over assessees.

"It can't be a one-way traffic. Why can't the Centre accomodate on the question of how GST should be administered," he asked.

He also said implementing GST by the April 1, 2017, deadline planned by the Union government appears to be unlikely.

"Demonetisation has indeed vitiated the whole atmosphere," Isaac said.

"Discussions in the GST Council have been cordial, in a spirit of consensus and Parliament had passed the Bill unanimously. Now there is no such general atmosphere, Parliament is divided," he said, referring to the almost continuous disruption of proceedings being witnessed during the winter session on the demonetisation issue.

"Demonetisation is a big strike on the revenues of the states, and in Kerala, we are estimating our revenues to decline by 40 per cent from impact of demonetisation," he added.

Calling demonetisation "a big magnum-sized tsunami", West Bengal Finance Minister Amit Mitra last week said India's gross domestic product (GDP) in the current fiscal (2016-17) will take a huge hit on its account.

"From an estimate that I have, the growth rate in aggregate will fall over 3 per cent and arrive at 4.3 per cent This means a loss of Rs 4.7 lakh crore of GDP, this will be extinguished" he told a TV news channel.

Mitra, who is Chairman of the Empowered Committee of State Finance Ministers and member of the GST Council, also said the postponement of the GST regime could be an option to stabilise the economy badly hit due to demonetisation.

"Should we rethink of stabilising the economy from this big hit resulting from demonetisation and then go for GST? Do we take the risk of a second whammy at this stage," he asked.