In the nick of time

In the nick of time

The Goods and Services Tax Council has made some breakthroughs on outstanding negotiables that were holding up the introduction of the indirect tax regime. A compromise has been reached between the Centre and the States on the formula for administrative control over taxpayers under the GST, which will subsume myriad existing State and Central levies on commercial activity. By giving up on its formula to split such control by assuming the authority to levy GST on all services entities and manufacturing firms with Rs. 1.5 crore or more annual turnover, the Centre has shown a willingness to meet the States more than halfway. The new control-sharing system appears simpler to administer. Now, 90 per cent of all GST assessees with a turnover of up to Rs.1.5 crore will come under the watch of the States and 10 per cent under that of the Centre, with both getting to assess half of the firms with a turnover over Rs.1.5 crore. More important, it gives States, many of which had claimed at recent GST Council meetings revenue losses following the demonetisation of currency notes, the leeway to claim that they have struck a better deal with the Centre on a reform that is now inevitable.
With the Centre finally laying to rest its hopes of an April 1, 2017 rollout and eyeing a ‘more realistic’ July 1 date, it has some room to tinker with a few indirect taxes in the Budget to provide a short-term pre-GST stimulus to the economy that is facing a flurry of growth downgrade projections. Since the trickiest issues between the Centre and the States are now resolved and only legislative drafts remain to be approved when the Council meets next on February 18, it is an opportune time to address some of the concerns raised by another key stakeholder — industry. Firms have indicated they would need about six months to gear up for the new tax regime once the laws, rules and all the minutiae of implementation, including the rates for different products and services, are known. More clarity and finesse are also needed on the harsh penal provisions, including the power to arrest, proposed in the draft GST law (that lists out 21 offences) and the creation of an anti-profiteering authority that can act against firms that fail to pass on benefits of tax rate cuts to consumers. While it is important to protect the consumer, a clear rule-based framework is necessary to ensure that one of the biggest gains envisaged from GST — an exponential change in ease of doing business — isn’t scuttled by fears of a return to inspector raj. For a government committed to ending tax terrorism, taking a step back to meticulously review the possible gaps between intent and implementation may be worthwhile — even if it means delaying the launch by a few fortnights.