GST: PREPARING FOR JULY 2017 NOW!!

[Dr. Sanjiv Agarwal]

GST Council's 9th meeting was held recently on 16^th January, 2017 for the ninth time, second time in 2017, for deciding upon the unresolved issues, mainly about the cross empowerment and territorial jurisdiction of states. This meeting was considered significant for timing of GST as the last attempt to reconcile and make the states agree, if the Union Government was still eyeing at 1^st April, 2017 for GST introduction. However, the GSTC did decided the issues before it but also deferred GST schedule by a quarter to 1^st July, 2017.

States wanted that they should control the entire assessee base including service tax assessees below the threshold limit of ₹ 1.5 crore whereas Centre was of the view that the States lack expertise and knowledge in service tax. While this may be true in the present scenario, training can always be imparted and no such beginning is late. All officers of Union Government are now being trained for GST. Similarly, State revenue officers can also be trained on service tax front. However, we know that how many officers have thorough knowledge of service tax despite service tax being in place since 1994. In some cases, quality of adjudication orders vouch for this.

The 9^th GSTC meeting has been able to break the deadlock between Centre and States on the issue of dual control of assessees and territorial jurisdiction.  Good or bad, GSTC agreed on the dual control for both thresholds, i.e. below and above ₹ 1.50 crore limit. The administrates of GST (adjudication, scrutiny, audits) as agreed by GSTC is as follows:

With turnover below ₹ 1.50 crore

·         90% with states

·         10% with centre

With turnover above ₹ 1.50 crore

·         50% with states

·         50% with centre

However, States will also be empowered to control equally under the integrated GST which may pose practical challenges. GSTC also agreed to states being allowed to have control over territorial waters. Though general consensus is being looked at, States like West Bengal and Kerala still continue to be in opposite camp.

The Centre and States have agreed to share the entire taxation base for assessment with a horizontal division. According to the agreed formula, which will apply for both goods producers and service providers, States will have the power to assess 90 per cent of all assessees with a GST turnover of ₹ 1.5 crore or less and the remainder will be with the Centre. Further, assessees with a GST turnover of over ₹ 1.5 crore will be assessed in a 50:50 ratio by the Centre and States. Intelligence-based enforcement powers will vest with assessing officers of both the Centre and States for all assessees.

Both have agreed that no assessee would be controlled by two authorities and there would be computer-based enforcement at both the Centre and the states. Those assessees who fall under the integrated GST, involved in movement of goods and services between States, will also be administered equally by the Centre and States. The Centre will retain the power to collect this levy. The Centre also gave the right to tax economic activities within 12 nautical miles of seas to coastal states, even as these will continue to be considered Union Territories. At present, these states have the right to tax these activities.

The next (10^th) meeting of GSTC has been convened for 18^th February, 2017 to have final approval of three laws – CGST, SGST and IGST and compensation law before they are referred to Parliament and State Assemblies. It is necessary that the law should be clear in defining functional and administrative guidelines for various levels of tax administration for both, Centre and States, more particularly with reference to inspection, field visits, search, audit and scrutiny of returns etc. Draft rules shall also be discussed.

As it is, GST may be made applicable w.e.f. 1^st July, 2017, i.e., in 2017-18 fiscal, for quarter-I, we will have present tax regime and for remaining three quarters, we will be having GST in place. Even if it is delayed beyond July 2017, the transition may not be an issue as it is a transaction tax. July may be a reality, hopefully so.

GST Council is also understood to be working on tax rate structure for services. This could be in 2-3 slabs for basic, standard and luxury / high end services. If this is through, we will end up in having too many GST rates which may not be desirable.  It is expected that finalizing of segment wise GST rates will take some more time.

On industry front, as the date comes nearer, there are going to be major challenges which inter alia include cash flow management, working capital, logistics, IT solutions, inventory planning and so on. Planning on all these fronts is subject to final law, rules, rates and credit / refund rules.

With Union Budget 2017-18 now scheduled to be presented in Parliament on 1^st February, 2017, first time in Indian history to be so presented with yet another first – a common Budget of finance and railways, this may perhaps be the last Budget before we have Goods and Services Tax in the country, i.e., last Budget to have Service Tax, Central Excise and Central Sales Tax as part of Budget. This will also be the first Budget to talk about both – Central Excise / Service Tax provisions for a quarter (April – June, 2017) and road map of GST to be levied w.e.f. 1^st July, 2017. However, July, 2017 may also be deferred to 1^st September if industry or Government is not ready. Also, Budget provisions will be made applicable w.e.f. 1^st April for the first time in 2017.

Budget 2017 may be used as an opportunity to align Central Excise and Service Tax rates with proposed GST rates so that they come closer to proposed GST regime and tax revenue is also enhanced.

What is now more important is that  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 be agreed upon. These are formidable tasks ahead for the GST Council. Besides, all 31 States have to pass their GST laws within the next few months and industry or Government have to be in migration mode.