GST Council says states will get exclusive control over all dealers up to a revenue of Rs1.5 crore—addressing the issue of dual control over small traders

New Delhi: In a big step towards the implementation of the goods and services tax (GST), the centre and the states on Friday reached a consensus on most contentious issues under the new indirect tax regime, raising hope that they would be able to agree on the last remaining issue, the tax rates, by next month.

The GST council, at its first meeting, agreed on a revenue threshold of Rs20 lakh below which the traders will be exempted from GST. This limit will be Rs10 lakh for the north-eastern and hill states.

The council also managed to reach middle ground on sharing of administrative powers between the centre and the states. It decided that states will get exclusive control over all dealers up to a revenue threshold of Rs1.5 crore—thus addressing the issue of dual control over small traders.

Given the lack of expertise among states to levy service tax, the centre will get control over all the existing 1.1 million service tax-registered dealers irrespective of their revenue levels.

The new additions to the dealer base will be shared between the centre and the states at a later stage once the states develop the requisite expertise.

For traders with revenue above Rs1.5 crore, a mechanism will be worked out wherein an assessee will be regulated either by the central government or the state government, based on risk evaluation.

“All decisions were arrived at by a consensus and not by voting,” said finance minister Arun Jaitley after the meeting.

The swift agreement on these contentious issues also raises hopes that the 1 April 2017 implementation date for GST will be met. Revenue secretary Hasmukh Adhia said the GST council had made good progress in managing to resolve many issues.

The next meeting of the GST council will be held on 30 September when it will decide on the five categories of draft rules detailing the processes under GST and on area-based and industry-wise exemptions. The tax rates and the slabs will be decided at a meeting to be held between 17 and 19 October.

In the meeting held Friday, the states agreed to keep 2015-16 as the base year for computation of compensation. All items including cesses will be included in the revenue base.

It has been agreed that compensation to the states for potential revenue loss resulting from the transition to GST will not be bunched up and either made bi-monthly or quarterly. However, the final procedure for computation of revenue projections is yet to be worked out. The options being discussed are to arrive at a growth rate for revenue projections, or take into account the revenue for the best three years in the last five years.

The exemption limit will make it administratively easier for the government and keep several small businesses out of the GST ambit, said Pratik Jain, leader, indirect tax, at consulting firm PricewaterhouseCoopers India.

The decision to give centre administrative control over small traders may mean dual control for companies that provide both goods and services, said Harishanker Subramaniam, national leader, indirect tax, at EY India.