GST Council Meeting clears drafts of 3 enabling bills including compensation for states: Next meeting on January 3 and 4, 2017.

GST Council Meeting clears drafts of 3 enabling bills including compensation for states: Next meeting on January 3 and 4, 2017.

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Goods and Service Tax Act, 2016 provisions – almost approved by the GST Council: The seventh GST Council meeting was held on 22-12-2016 [Thursday] and 23-12-2016 [Friday] at New Delhi, as usual. On 22-12-2016, [Thursday], the Council had finalised the Central Goods and Service Tax (CGST) clauses. CGST, is one of the three categories under Goods and Service Tax (CGST, IGST and SGST) with a concept of one tax one nation[1]. CGST falls under Central Goods and Service Tax Act 2016. As many as 20 chapters of the model GST law cleared in its last meeting earlier this month. All other provisions of the draft model GST Bill and compensation Bill were cleared[2]. To a query that industry wants more time to prepare for GST, Jaitley said, “That we will decide once we cross all bridges. I am not going to bind myself with anything. Our effort is to do it as quickly as possible. And I think we are making a reasonable headway….. The CGST and SGST laws, a total of 197 provisions and five schedules, have been approved.” The Council approved the draft model GST Bill, except for provisions relating to administrative turf[3]. The bill was passed by the Rajya Sabha on 3 August 2016, and the amended bill was passed by the Lok Sabha on 8 August 2016. In other words, the opposition parties have been dragging the issues for more than four months.

gst-consensus-is-not-yet-reached-21-11-2016-business-standardGST Council keeps dual control for next time: The politicization of the GST is evealed more in the continuing of GST Coulncil meetings that go on discuss the same issues again and again without reaching any consensus. The tricky issues of division of administrative turf over assessees between the Centre and states — which can make or break the roll-out of the goods and services tax (GST) on April 1, 2017 — was not taken up by the GST Council during its two-day meeting that ended 23-12-2016 [Friday][4]. In spite of the last six meetings, if this was not possible, it is intruguing what they were discussing every time. The next meeting of the Council, on January 3 and 4, 2017[5] would try to resolve the issue of dividing the administrative powers between the Centre and states, but signals given by state governments on Friday suggest that it would be a difficult task. The meeting would also take up the Integrated GST (IGST) Bill[6]. “That leaves us with the very important work of IGST law and cross-empowerment,” Union Finance Minister Arun Jaitley told reporters after the meeting on Friday. A state finance minister said states were clear there should be no dual control over assessees with up to Rs 1.5 crore annual turnover[7]. This means that states want sole control till this limit, and share powers with the Centre over this threshold.

gst-council-makes-headway-on-bills-24-12-2016Cross-empowerment model, Territorial limits of states  and distribution of IGST: On the other hand, the Centre has been pushing for a cross-empowerment model of randomly choosing and dividing five per cent of the assessees between itself and the states, using a computer programme.  The division of administrative turf involves another issue — whether or not states can have control over assessees having inter-state businesses. This comes under the IGST Bill and the Centre is empowered to collect IGST and distribute it among states.  The issue of IGST also involves the territorial limits of states[8]. This could also turn out to be a vexed issue, if not resolved quickly. “Definition of the territory of a state itself is a matter of Constitutional interpretation. We will have to discuss it and reach a decision,” Jaitley said[9]. The Centre also wants to take 12 nautical miles[10] beyond coasts as Union territory and tax any item sold there. Coastal states are averse to this.  With the development of science and technology, the coastal activities have been incresasing on many accounts, attracting manufacture of goods with the involvement of many services. If these issues are resolved even in the next meeting, the Bills could come up in the Budget session of Parliament. When asked whether or not the GST could be rolled out from April 1, 2017, Jaitley said, “Well, I am trying my best to do that. I don’t want to hasten the process of discussion. I don’t want to delay the process of implementation. Left to myself, I would like to (implement it from April 1).”

gst-council-keeps-control-for-next-meet-bs-24-12-2016The Compensation Bill: It also decided to provide full compensation to states every two months instead of quarterly payout decided earlier for first five years of the GST roll-out. There are expectations that the total compensation would amount to Rs 50,000 crore a year, but Jaitley said there was no cap on the amount[11]. The Council had decided to levy a cess on luxury and demerit goods over and above the higher rate of 28 per cent under the proposed multi-tier GST rate structure to create a compensation fund to pay states for their revenue losses after GST rollout[12].  The States, where manufacturing activities are more again and again sress that they would be loosing much, because of the taxing on ultimate sale and therefore, they should be compensated accordingly. Compensation law has to be approved by Parliament. The GST Compensation Bill will provide a legal backing to the Centre’s accord to compensate the states to the full extent of 100% if their revenue growth rate falls below 14% in the first five years of GST roll out. The base year for calculating revenue of a state has been decided as 2015-16.  Basic draft of Compensation law was also approved[13]. Compensation law has to be approved by Parliament[14].

gst-in-last-lap-toi-graphics-04-11-2016-1Contentious issues would be decided with consensus: However, the FM indicated that there would not be voting to resolve the contentious issues; these would be settled through consensus. “It would be resolved through a deliberative way. The GST Council meets for a full day. There is discussion for hours on a single subject. There is a high standard of debate. We get alternative suggestions. We accept the best solution after listening to all proposals. We have not decided any issue through a vote or by a give-and-take policy,” he said. It will be drafted in legally vetted language.  Despite the fact that the government failed to table and pass the draft GST laws in the Winter session of Parliament, Mr Jaitley said he was trying his best to meet the government’s deadline of April 1, 2017 for the rollout of GST. “We don’t want to hasten the process of discussion,” he said[15]. “But we don’t want to delay implementation either. The GST Council meetings are all-day and issues are often discussed for hours. No decision has so far been taken by vote, all are by consensus.”

The effect of demonetization and the GST: “If there are high deposits in banks and we got higher tax receipts after demonetisation, will it be linked to GST?” Jaitley wondered.   The next meeting would also discuss the states proposals for the union Budget of 2017-18. As the ruling party and the opposition had bitter exchanges over demonetisation, a question was asked whether there would be political hurdles in the way of GST. The finance minister said: “We are living in the real world and politics is a part of the real world. At the end of the day, one has to assume that elected representatives of the Centre and states have a sense of responsibilities. So far, despite initial divergence of views, it all ends with convergence.” Ironically, 90% of the press repoting has been based on the Arun Jaitley’s “Press Meet” and therefore, much of the GST Council meeting details were not divulged and the media has been putting up pieces together to give some picture.  The passing of the GST Act is not personal to Arun Jaitley and he need not face any hurdles in implementation[16]. If at all, India has to fall in line with other countries, get FDI for economic development, the States have to cooperate, but, because of their politics, it has been delaying[17]. That they have been harping upon the same points is well noted by the industries, businessmen and common people.

© Vedaprakash

29-12-2016.

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[1] Zeebusiness, GST Council finalises compensation rules; next meet on Jan 3, Updated: Fri, Dec 23, 201607:14 pm

[2] http://www.zeebiz.com/india/news-gst-council-finalises-compensation-rules-next-meet-on-jan-3-9576

[3] The Hindu, GST Council moves a step closer to finalising draft laws, NEW DELHI DECEMBER 23, 2016 18:58 IST;  UPDATED: DECEMBER 23, 2016 19:10 IST.UPDATED: DECEMBER 23, 2016 19:10 IST

[4] Moneycontrol, GST Council to take up dual control issue at Jan 3-4 meet, Dec 23, 2016, 09.11 PM | Source: CNBC-TV18

[5] http://www.moneycontrol.com/news/economy/gst-council-to-takedual-control-issue-at-jan-3-4-meet_8157341.html

[6] Business Standard, GST Council keeps dual control for next time, Indivjal Dhasmana & Dilasha Seth  |  New Delhi December 24, 2016 Last Updated at 01:35 IST.

[7] http://www.business-standard.com/article/economy-policy/gst-council-to-meet-again-on-jan-3-4-to-decide-on-dual-control-and-igst-fm-116122300722_1.html

[8] DNA, GST council fails to break deadlock on dual control, next meet on Jauary 3,4, Fri, 23 Dec 2016-05:59pm , Mumbai

[9] http://www.dnaindia.com/money/report-gst-council-meet-uncertainty-looms-over-issue-of-cross-empowerment-dual-control-2285795

[10] 1 nautical mile = 1.1508 statute miles = 1.85203308 kms

[11] Indian Express, GST council meeting: Compensation Bill to see a redraft on the ‘note ban factor, By: ENS Economic Bureau | New Delhi | Published:December 24, 2016 2:25 am

[12] http://indianexpress.com/article/business/economy/gst-council-meeting-compensation-bill-to-see-a-redraft-on-the-note-ban-factor-4442430/

[13] Doordharshan News,  GST Council clears drafts of 3 enabling bills including compensation for states, Updated on : 23-12-2016 10:55 PM

[14] http://ddinews.gov.in/Home – Top Story/Pages/GSTlaw.aspx

[15] http://www.thehindu.com/business/Economy/GST-Council-moves-a-step-closer-to-finalising-draft-laws/article16932570.ece

[16] Economics Times, Arun Jaitley faces few hurdles in GST implementation, ET Bureau, Updated: Dec.24, 2016, 09.29 AM IST.

[17] http://economictimes.indiatimes.com/news/economy/policy/finance-ministry-states-move-closer-to-draft-gst-bill-arun-jaitley/articleshow/56140269.cms

 

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