Sharing of tax-base won’t affect bulk of assessees

The agreement on dual control of tax assessees, thrashed out between the Centre and the states, is without doubt a big win for finance minister Arun Jaitley. Indeed, thanks to some tough bargaining by the states, especially after the political standoff on demonetisation, GST was threatening to become a non-starter but with the thorny issue of dual control having been resolved in principle, the levy could now be in place as early as July 1. Even if the new regime kicks off in September, it will be a feather in the NDA cap. Going by what has been decided, it would appear both the Centre and the states have softened their stances. While the states were looking to control 67% of assessees with a turnover of over R1.5 crore, this ratio is now a more equitable 50:50. Also, while state finance ministers were asking for total control over assesses with a turnover of below R1.5 crore, they have now agreed a tenth of these would be overseen by the Centre. While IGST should logically only have been the prerogative of the union government, the states will now play a role in administering this levy through cross-empowerment.

Though the details of how control over larger firms with a turnover of more than R1.5 crore will be done are not clear, especially since there are 30 states, tax experts believe pan-India assesses might be left to the supervision of the Centre, with the states taking care of companies operating out of just one or two states. While that looks like it could end up in a messy solution for assessees, as this newspaper has argued, this may not be true. Since well under 5% of assessees will be picked up for scrutiny, the bulk of those uploading their returns on the GSTN will not even need to meet a tax officer, whether of the state or the centre. While those picked up for scrutiny will meet one officer—whether central or local is what is to be decided based on the formula Jaitley announced—it is to be hoped the Centre and the states will consult each other if there is a large difference between what has been filed by the firm and what the tax officer believes to be true, to keep litigation to the minimum.

This still leaves several loose ends to be tied, apart from getting all the necessary legislation passed. The GST rates agreed to are still too high and there seems little point moving to GST if, as seems to be the plan right now, firms are to pay rates similar to what they are today; apart from doing little to boost compliance, big economic benefits will only be got from lower taxation rates on each good/service. Levying a surcharge to fund the compensation for states is also a bad idea, especially since the compensation is only to be there for a limited period; the anti-profiteering clause is also retrograde and just opens up firms to all manner of inspector raj. It is to be hoped, however, that the GST Council will continue to show the maturity it has so far, and there will be a gradual lowering of rates and removal of powers that add to inspector raj—hopefully, if the NK Singh panel gives the government some flexibility on FRBM targets for the initial GST years, the Council will agree to drop the surcharge before GST is brought into being.