Industry and consumers would have to wait at least a fortnight to know the much-awaited goods and services tax (GST) rates, as the meeting of the Council to decide it ended abruptly on Wednesday, a day ahead of schedule.
The Centre and the states failed to reach any consensus on it. Also, the issue of administrative control over tax assesses or dual control - claimed to have been settled earlier - cropped up again.
It was decided the GST Council would meet again on November 3 and 4.
The Centre and states, however, did manage to reach a broad agreement on the formula for compensation to loss-incurring states and a cess over the peak rate to fund the compensation.
The details of these would be worked out at the next meeting, before tax rates can be fixed. The issue of tax rates, for which the Centre has suggested four slabs and a cess, would also be taken up in the November meeting.
"On the issue of source of funds from which compensation to the states would be funded, the GST Council has virtually converged towards a consensus. But a formal announcement on that will be made after working out the details. Once that is decided, a decision on the rate structure will become easier," Union Finance Minister Arun Jaitley told reporters after the meeting chaired by him.
He said once the issue of whether or not the compensation was to be funded out of the rate structure itself or out of some cess is answered, the rate structure can be determined independently.
"We cannot under-tax or over-tax to keep rate slabs minimum... the attempt was to fit zero-rated items while levying a six per cent tax on items that are currently charged three to nine per cent tax. We will finalise the tax structure at the next meeting," he said.
Revenue Secretary Hasmukh Adhia said first tax slabs have to be decided, then there would be decision on which goods and services go where.
The GST Council will again on November 9 and 10, when it is slated to discuss draft model GST Bill.
Differences between states and the Centre over dual administrative control cropped up again, forcing the council to look at it again.
Jaitly said, "We started a discussion on the issue of dual control and division of authority with regards to assessments. The underlying principle, which has been agreed on, is that a single assessee will be assessed by a single authority. So who will the Centre assess and who will states assess, and how that division will take place depends on how the dual authority is managed."
Earlier, the council had decided that states would have sole administrative control over assessees having an annual turnover of Rs 1.5 crore. Above that, both the states and the Centre would have control. The Centre would have sole control over assessees in the services sector right from the beginning till the time states have a mechanism to monitor service tax assessees.
However, that consensus broke down later as a few states said they also monitor some service taxes even now, such as entertainment tax and as such should have control over that.
Some states also said there should be a similar mechanism between goods and services.
Adhia said, "There was a view that assessment control over goods and services should not be different from each other."
This is especially in the case of businesses which provide both goods and services, he said, adding some people will be registered for VAT as well as service tax.
"For instance restaurants register for both service tax and VAT. All this will be decided later. So, the whole issue of dual control is being revisited. Yes, the Rs 1.5-crore dual control issue is also being relooked at," he said.
However, consensus was reached on compensation to states by way of cess on ultra-luxuries or demerit items, but the rate of cess could not be decided upon.
The Centre's proposal of a four-tiered rate structure - 6, 12, 18 and 26 per cent - will again come up for discussion in the next meeting. The rate proposal also includes a four-per cent tax on gold.
The entire requirement for compensation is broadly pegged at Rs 50000 crore per annum. Of this, Rs 26,000 crore is estimated to come by way of Clean Environment Cess, which will not be subsumed into GST unlike other cesses and surcharges.
Then, the proposal is to have a cess over the peak rate on luxury and "sin" goods.
"The compensation mechanism is almost finalised. The council is in favour of a cess as it is the simplest way of funding compensation," said Haryana Finance Minister Abhimanyu.
Adhia said cess will be same for all states for a particular item. "One challenge is how many slabs you can have," he said.
Experts warned of a cascading effect if cess was imposed on GST.
"The maximum rate of 26 per cent for demerit or luxury goods may harbour more goods than initially envisaged, which will make them costlier. Also since cesses would be outside the GST, the present cascading may continue raising the tax burden," said Bipin Sapra, tax partner, EY.
Kerala Finance Minister Thomas Issac said the compensation issue was largely settled.
Tamil Nadu, which had opposed the Constitution amendment Bill on GST, said it was not opposed to GST per se.
Its School Education Minister K Pandiarajan, who attended the Council meeting, said, "We were opposed to loss of fiscal autonomy. We are happy with the transparency in discussions so far. However, we are concerned that there is no one tax rate but many slabs have been suggested. We are happy that the Centre has proposed a cess to fund compensation of producing states that would lose revenue."
Adhia said he was confident of meeting the April 1 deadline to rollout of the uniform indirect tax regime. The government was hopeful of deciding on key GST issues by November 24.
The council is headed by Union Finance Minister Arun Jaitley and comprises finance ministers or other representatives of states.
THE ROAD AHEAD
The Centre and states managed to reach consensus on some issues while others were kept on hold for the next meeting
Full compensation: Centre, states have agreed those states incurring losses as GST is rolled out will get full compensation for five years
- Cess: To be imposed over peak rate on luxury and "sin" goods to compensate states
- Administrative Control over tax assessees
Next meeting: November 3 and 4
Agenda: Details of the compensation mechanism, including financing
Administrative control over tax assessees