Baby steps to GST

Dual control has been sorted out for now, but the devil lies in the details


On the face of it, it is a relief that the Centre and States have sorted out the issue of ‘dual control’, paving the way for an early introduction of the Goods and Services Tax (GST). Bureaucracies are not known to fight for working more; yet, here the tax departments seem to have goaded their respective States and the Centre into a turf war over assessees.

This is despite the fact that each assessee will fork out an equal share of revenue to both by way of CGST and SGST! The Centre has largely allowed States to exercise administrative power over assessees with a turnover of less than ₹1.5 crore, with the Centre exercising control only over 10 per cent of the assessees in this category. So, most small enterprises can rest assured of having to deal with the same set of tax officials.

For businesses with more than ₹1.5 crore turnover, the Centre and States will split the assessees equally. This dispels apprehensions of the assessee having to simultaneously deal with two sets of tax authorities. But how the splitting of the tax base will actually work remains to be seen. If the assessees are randomly picked and rotated, say, every three years, it could lead to a new set of tax officials questioning the assessments of the earlier set.

To minimise such headaches, it is very important that State tax staff is well trained in central excise and service taxes, and vice-versa. Despite GST being in the air for years, the bureaucracy and businesses are still not clear about its basic contours. While completing the remaining processes with a sense of urgency, governments must devote more time to having consultations with the public on the subject to promote awareness.

In effect, Monday’s consensus seems to have been arrived at simply with the objective of ensuring that the show goes on. However, the July 1 timeline seems optimistic. While the rates have been agreed upon (nil, 5 per cent, 12 per cent, 18 per cent, 28 per cent and a higher rate for ‘sin’ goods), the crucial issue of identifying the goods concerned for each levy remains to be worked out. The list of exempted items remains to agreed upon. These are formidable tasks ahead for the GST Council. Besides, all 29 States have to pass their GST laws within the next few months.

While moving ahead it is important not to ride roughshod over the details. One of these is the punitive provisions in the Model GST law, which West Bengal Finance Minister Amit Mitra has rightly questioned. A threshold of just ₹20 lakh above which GST will apply will increase the compliance costs of micro enterprises, which will have to file a slew of returns every month — thereby exposing them to harassment and extortion. These aspects of the model law need closer scrutiny if GST is to really work as a business-friendly proposition for all.