Much ado about nothing
It is unfortunate that the Centre and the states have not been able to reach agreement on who would control which segments of the goods and services tax administration after repeated meetings of the GST Council. The problem area is who would administer GST over small businesses whose turnover is below a threshold of Rs 1.5 crore. These are the bulk of taxpayers but are likely to account for a relatively small proportion of the total revenue. The Centre should give up its demand to oversee tax administration at this stage and leave it to the states.
Essentially, all GST is filed, accounted and processed by the GST Network, which is a neutral, not-for-profit entity. Only scrutiny and audit remain to be performed, whether by the central tax administrators or by their state-level counterparts. Audit would be limited to a small, say, 5 per cent, randomly selected sample. Scrutiny would again, presumably, be restricted to cases where GST Network detects a mismatch between input tax claims and corresponding tax collections reported.
GST is a system of taxation that not only has compliance built-in but has a system of verification built-in as well. The total value added by an enterprise is equal to the sum of its gross profits and wages and salaries. The total GST an enterprise pays in a year must tally with this figure. Once businesses get the hang of the accounting required for GST, there is little scope for arbitrary tax demands, whether from the central or state-level tax administrators.
The dispute over taxation powers over transactions in littoral waters should also be settled in favour of the states. These would tend to be trawlers selling their catch and suchlike. If the law needs to be changed to enable this, it should be changed. It would be most unfortunate if these relatively minor areas of disagreement are allowed to disrupt the transition to a wholly desirable new taxation paradigm. But if these disputes are mere fig leaves for political antagonisms, such as over demonetisation or alleged use of the CBI to settle political scores, that calls for political rapprochement at a non-GST level.
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