Demonetization cess stalls GST train

Non-BJP ruled states say revenue has declined 40% post note ban, see compensation amount touching Rs 90,000 crore


Creating a new obstacle to the rollout of the much-awaited Goods and Service Tax (GST) regime, state finance ministers, attending the eighth meeting of the all-powerful GST Council, on Tuesday demanded enhancing the number of items on which cess is to be levied to compensate the states to deal with revenue loss estimated at Rs 90,000 crore in the wake of demonetization.

Non-BJP ruled states claimed that the compensation amount is expected to go up to Rs 90,000 crore post demonetization as most states have seen revenue decline of up to 40%. Initially a Rs 55,000 crore GST compensation fund was proposed to be created by levying cess on demerit or sin goods and luxury items.

The coastal states — TMC-ruled West Bengal, CPM-led Kerala and Congress-ruled Karnataka – also demanded taxation rights for sales in high seas — for rights to levy GST on trade of goods within 12 nautical miles offshore.

This has eventually held up finalisation of the draft law for levy of Integrated-GST (IGST) on inter-state trade. The standoff has led to chairman and union finance minister Arun Jaitley agreeing to seek legal opinion on its constitutional validity.

Jaitley said that no consensus has been reached between Centre and States on the issues of dual control and definition of territory. Speaking to the media, he said that next meeting to discuss differences would take place on January 16.

Speaking on the issue of reaching April 1st deadline, Jaitley said: “We know the difficulty, we are moving against time that is why we are meeting on January 16.”

“IGST has 11 chapters, initial ones discussed, few remain; because discussion was inconclusive. We will meet again on January 16 ,” Jaitley after the GST council meet.

Though no consensus have been reached, Jaitley said that States have a very positive attitude towards resolving differences.

Jaitley said that revenues in terms of both, direct and indirect taxes will be higher estimated. “We will end the year with higher revenues in both direct and indirect taxes, will exceed budget estimates,” said Jaitley.

“Some FMs gave details of increased revenue. We have asked states to furnish revenue data of last 2-3 years,” Jaitley said on data sharing issue between Central and State governments.

Harishanker Subramaniam , national leader – indirect tax, EY India, said it is disappointing that GST Council discussions have ended without much progress, without even discussing the critical issue of dual empowerment.

“The next meeting on January 16 becomes critical to move forward and enable GST bills to be tabled during the Budget session of the Parliament. The date of April 2017 looks off the table and more likely to be July 1, 2017,” said Subramaniam.

Regarding demonetization and the existing currency-related issues, Jaitley said, “The RBI will decide after assessing market situation, sometimes decisions are taken in phases and so are relaxations.”

Dual control and definition of territory have been the key issues preventing Central Government from meeting the April 1 deadline. In council’s last meeting, the finance minister had said that GST’s primary drafts for Central Goods and Service Tax (CGST) and State Goods and Service Tax (SGST) have been approved. However, no consensus was reached on the issues of dual control and cross empowerment issues still remain to be resolved.

There is an issue with Integrated GST (IGST) Bill and dual control regarding division of jurisdiction and administrative powers over tax assesses between the Centre and the States.