Who will tax whom? GST Council looks to break logjam between Centre, states

The eighth GST council meeting which begins Tuesday in New Delhi will be chaired by finance minister Arun Jaitley and comprise of all the state finance ministers.

In its two day meeting, the council will meet representatives of six crucial sectors, including IT, telecom, banking and insurance, to assess the implementation hurdles under the new GST regime.

At the two-day meeting, a presentation will also be made by sector representatives of civil aviation and railways.

On the agenda are dual control and a final seal of approval on the Compensation Bill.

Dual control will decide who taxes whom between the states and the centre. At the heart of this debate are states such as West Bengal and Tamil Nadu, which want control over businesses with an annual turnover of less than Rs 1.5 crore. But the Centre has refused to concede, stating that taking such a step would leave it with a very small pool of taxpayers.

Sources in the GST council said the speed at arriving at a consensus on this matter would decide how soon the government can implement the new tax regime. While meeting the April 2017 deadline now appears virtually impossible, the trust deficit created by demonetisation is likely to force further delays in ironing out differences on dual control and compensation.

Though the issue of compensation was already discussed and agreed upon in earlier meetings, the demonetisation initiative has reportedly spurred the states to demand changes in the law – including bi-monthly payment of compensation instead of quarterly.

At a previous meeting in October, the council had already fixed the compensation meant to be given to the states for the first five years after the GST is implemented. With 2015-2016 fixed as the base year, the likely compensation for states was based on a projected 14% revenue growth. However, the after-effects of demonetisation have led most states to believe that the Centre’s computation of the cess may not be sufficient for compensating the revenue loss.

The funds for this compensation are supposed to be drawn from the cess imposed by the Centre on luxury and “sin” goods.