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Saturday, November 12, 2016

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GST-Council, not able to make consensus on tax structure

GST Council is yet to decide on GST rate structure. Since, the last meeting which concluded on 19th October,2016 could not result a consensus amongst states on various reasons.

GST
GST-Council, not able to make consensus on tax structure
GST Council is yet to decide on GST rate structure. Since, the last meeting which concluded on 19th October,2016 could not result a consensus amongst states on various reasons.

What prevented a Consensus ?
The following are the reasons which acted as a barrier in making consenus on GST rate structure :

Source of funding the compensation to states has to be finalized first. Levy of Cess on demerit goods as suggested by Central Government was objected as contrary to the spirit and object of GST.

Consolidated fund model was proposed by states for compensation of loses.


What was Decided ?
Fortunately, the modalities for calculating the losses incurred by states were agreed with consensus in GST Council. But, a decision on the compensation funding mechanism is still a big challenge.

Which Cess was Proposed ?
The Centre proposed a Cess on demerit goods in the name of  Clean Environment Cess. Whereas, all other taxes and Cess would be subsumed in GST, but it was not acceptable to the States.

The States have their  logic that a levy of Cess will not result into subsuming of all taxes. Whereas, GST is being implemented to subsume all  taxes. Whereas, the Centre finds Cess to be a best way out to make a pool for funding compensation to States.

Next Meeting of GST Council
The next meeting of GST Council is scheduled on 3rd November 2016.

Statements of Finance Minister & Revenue Secretary
The Finance Minister , Mr. Arun Jaitley told the reporters that wWe will finalise the tax structure at the next meeting… it can be frozen only after deciding whether compensation to States is to be funded out of the rate structure itself or from some special cess or some third source.”


Whereas, Revenue Secretary, Mr. Hasmukh Adhia stated the following :

The members had sought time for discussing with their State governments the four-slab rate structure, ranging from zero to 26 per cent, the Centre has proposed. “The Council will be able to finalise the GST rates structure after consensus is reached on the funding mechanism for compensations,”

If instead of the proposed cess on GST, simply the rate of the GST on demerit goods is raised, as suggested by some States, then, the GST rate structure would end up with a multitude of tax slabs”

“For example, he said, the current rate of incidence of taxes may differ for aerated beverages, cigarettes, bidis and luxury cars.”

If you have to put each in rate structure, one challenge is how many slabs can you have then… Can you have 26, 45, 75 per cent slabs? There are commodities where the effective rate of taxation currently is more than 100 per cent. Now the question is, is it feasible to have so many slabs of taxation in GST,”

The Council could not discuss the proposed GST rate of 4 per cent for gold”

Conclusion

The time frame of 1st April,2017 will be a big challenge, if the GST Council could not make a consensus on Compensation fund module and GST rate structure in next meeting on 3rd November 2016.

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