GST deadlock continues over dual control, high sea taxes

The deadlock over the Goods and Services Tax (GST) continued today with the Centre and states refusing to budge from their respective positions on issues like control of tax payers and taxing high sea trade, a stalemate that threatens to delay the rollout till September.

The two-day meeting of the all-powerful GST Council, the 8th in a row, made little headway in brokering a solution even as non-BJP ruled states saw September as more likely deadline for the rollout of the indirect tax regime.

The next meeting of the GST Council, headed by Union Finance Minister Arun Jaitley and comprising state representatives, on January 16 would discuss the issue of jurisdiction over assessees as well as try to reach a finality on taxation of territorial waters.

Kerala Finance Minister Thomas Isaac said the other remaining issues before the GST Council include ways to fund the compensation to states for GST rollout and states participation in Integrated GST (IGST).

"Working overtime, it should be possible to meet the deadline of September. I am not very optimistic about rolling GST out in June/July. Because it is a new tax and lot of complexity involved, it would be better to move in after full preparation. So GST, to my understanding, will be implemented from September," he said.

Isaac said some states wanted the GST revenue from the highest tax bracket to be shared in 60:40 ratio with the Centre, instead of the present 50:50 sharing.

"There are 4 different rates that have been fixed. Highest bracket is 28 per cent and of this how much will be the Centre and state's share, nowhere in the law it defines and it seems to be taken for granted it is 50:50. Ever since the Independence in the Centre-state financial relation the imbalance has been growing wider and states' rights have been curtailed.

"That can be corrected by ensuring that state's share in GST will be 60 per cent. Many states also supported this. The Centre did not respond to the demand but it was decided to be discussed later," he said.

Isaac said convergence has been growing between the Centre and states. "The Centre seems to be in a mood to rethink some of the positions that the Centre has been adopting... On the whole the Centre has been taking a step backward and if it really takes one more step backward I think we will have a deal."

As regards the treatment of IGST, Isaac said one interpretation of the Constitutional amendment is that IGST tax is levied, collected and assigned by the Centre. During the meeting states said that IGST cannot be implemented without states' participation and dual control.

He said certain states continue to demand sole control over assessees with turnover of below Rs 1.5 crore. The total share in revenue of assessees below Rs 1.5 crore turnover is 15 per cent. The issue of dual control was not taken up by the GST Council in its meeting today.

"The Centre seems to be understanding and appreciating the position of states and if they can take a decision on January 16 there can be some forward movement. On the whole the Centre has been taking a step backward and if it really takes one more step backward I think we will have a deal," Isaac said.

As regards taxing territorial waters, he said: "Though SEZ is a state territory, but it is deemed to be an independent territory. Somewhat similar treatment can be given to coastal waters under GST law. The Centre seems to be accepting the position, it has not given its word but will respond on January 16."