A goods and services tangle

A goods and services tangle

Soon after the seventh meeting of the Goods and Services Tax Council last week, Finance Minister Arun Jaitley said only one difficult issue remains pending to enable the implementation of the new indirect tax regime. The Centre is determined to introduce the GST from April 1, 2017, and given the time constraints posed by that deadline, Mr. Jaitley expressed hope that States would rise to the occasion and help resolve the issue. It can be safely assumed he was referring to the turf battle between the Centre and States on sharing administrative powers over taxpayers in the new system, even if this is not the only hurdle left to cross. This was the first time the Council met after the washed-out winter session of Parliament, with no movement on four enabling GST legislations. Over two days last week, the Council managed to clear the current drafts of the Centre and State GST Bills and agreed on a two-monthly compensation payout to States, instead of a quarterly one, for revenue losses they might incur after the switch. The trickiest tangle of cross empowerment or dual administrative control will now be taken up in the first week of 2017, along with the model integrated GST Bill and the legalese around compensation payments to States.

Even though an April 1 roll-out now looks increasingly unlikely, the Council’s next meeting is critical to enable the GST laws to make it to the Budget session of Parliament. States have mooted a July 1 start for the GST regime, and that date could be pushed as far as September 16, 2017, following which all existing indirect taxes will lapse. Since it is a transaction tax, the GST can technically be started any time of the year. Although that would be an accounting headache for firms, industry may be better off with the extra time to prepare for the new order. Between now and then, the Centre’s self-imposed 50-day deadline for reducing the pain caused by the demonetisation of high-value currency notes would have passed too. States may harden their stance on GST negotiations if the remonetisation process hasn’t picked up by December 30. The Centre has so far brushed aside demands from Tamil Nadu and West Bengal for additional compensation to make good the revenue losses triggered by the slump in demand in the ongoing currency crisis. But even BJP allies have begun to raise concerns. It is unlikely to be a coincidence that soon after the Andhra Pradesh Chief Minister spoke out about the implementation of the demonetisation exercise, his representative in the GST Council said the State would not accept the levy of a cess by the Centre in order to reimburse States. The Centre may need to rise to the occasion as much as States do to steer the GST regime forward.