Turf war over dual control: GST on a knife-edge as states act tough

States refuse to budge from their stand on division of administrative powers between them and Centre

States on Friday refused to budge from their stand on division of administrative powers between them and the Centre under the proposed goods and services tax (GST), putting road blocks in the way of tabling the GST Bills in the ongoing session of Parliament and introducing the new indirect tax system from April 1, 2017.

Only nine working days are left for this session to end, prompting Union finance minister Arun Jaitley to say that GST has to be implemented by September 16, 2017; else, imposing indirect taxes will be a problem. Notably, he did not rule out the possibility of rolling out GST six-and-a-half months later than the targeted date of the beginning of the next financial year.

The GST Council met on Friday and many states demanded that the issue of administrative control be discussed first before other portions of the GST Bills and compensation legislation. Much of the time was spent in finalising this aspect and finally draft model GST Bill, barring administrative portions, was taken up. The administrative division between the Centre and states will come up on Saturday. The meeting on Saturday will also discuss the impact of demonetisation on states’ revenues.

When asked whether the central GST and integrated GST Bills as well as compensation legislation could be tabled in the current session of Parliament and the new indirect tax can be introduced from April 1, 2017, Kerala Finance Minister Thomas Isaac told reporters after the council meeting: “It is possible if a compromise is reached over the administrative aspects of the GST. What stands between a consensus on GST and moving the law in Parliament is only the intransigent view of the Union government regarding tax administration. I’m unhappy that after travelling this long road together, we had this split.”

He said states want horizontal division where states are to have the sole control below Rs 1.5 crore of turnover of assessees and there would be a vertical split between the Centre and states above that threshold.

“The Union is not willing to accommodate this demand,” Isaac added. Pointing out that this is not the new idea and states have been flagging this up from the beginning itself, the Kerala finance minister said: “This has been going on for the past two-three meetings. Tomorrow, perhaps we will take it up, if there is time.”

The Centre and states had reached an understanding in the initial meetings of the Council that the states will have sole control over assessees till Rs 1.5 crore of turnover, over which both the Centre and states will have power in case of goods. In case of services, the Centre will have sole power over assessees till the time state officials have enough skills to tax services.

However, this understanding was broken later after some states argued that they also impose tax on certain services such as entertainment tax and have powers over assessees in services as well. The division of administrative powers between the Centre and the states has been hanging in balance since then.

The Centre, on the other hand, is pressing for cross empowerment for all assesses or those who would be scrutinised.

“Suppose the Union government takes a conciliatory move and concedes our demand, then these Bills will be approved tomorrow (Saturday). Dual control is a point, we are not going to compromise or concede,” said Isaac.

Haseeb Drabu, finance minister of  Jammu & Kashmir, said there has been no consensus on administrative control issue. “We will be discussing this tomorrow (Saturday) afternoon as well. I’m sure there will be some progress. It is a cumbersome process.”

However, he said the April 1, 2017 target is doable.

Captain Abhimanyu, finance minister of Bharatiya Janata Party-ruled Haryana, also said introducing GST from April 1, 2017 was achievable.

At a separate function in the morning, Jaitley said GST has to be rolled out by September 16, 2017 or it would be difficult to impose indirect taxes.

“The Constitution does not permit delay in GST implementation. The government notified GST on September 16 and the constitutional amendment itself says the current indirect tax system can continue for one year, after which the GST has to come. So, if as on September 16, 2017, there is no GST, then there is no taxation in the country."

Jaitley did not speak to reporters after the meeting.

On West Bengal finance minister Amit Mitra's statement that demonetisation and GST were a double whammy for states and that GST timeline was not feasible after the Centre’s move to withdraw high-denomination currencies, Isaac said he has no differences of opinion but the two issues need not be mixed.

“Definitely, there will be a discussion on demonetisation (on Saturday) because some other ministers also wanted discussion, particularly its impact on revenues of states and the Union finance minister is not averse to that, but time was a constraint.”

He said demonetisation has affected many states. “States are going to have problems in mid-December. That is going to put states in a great hardship for salary payment of January.” 

The road ahead

• If consensus is reached between Centre and states over administrative powers, GST and compensation Bills could come up for discussion in the ongoing session of Parliament, and state GST Bills in the state assemblies. The target of introducing GST from April 1, 2017, can then be achieved 

• Only nine working days are left for Parliament’s winter session to be over

• If consensus is not arrived at, introducing GST from the targeted date could be an issue

Sticking points between Centre & States

• The division of administrative control over GST

• States wanted it to be first discussed at Friday’s GST Council meet

• But the issue was put off for Saturday