GST Council holds first meeting: Centre, states battle it out on many issues but agree on 1 April rollout

New Delhi - Moving towards rolling out GST from 1 April, the Centre and states on Thrusday agreed on a timetable for deciding on the tax rate and completion of legislative work but differences remained on the turnover limit for exemption from the new tax.

The first meeting of the newly constituted GST Council saw states like Tamil Nadu and Uttar Pradesh demanding a larger say than one-state-one-vote principle that puts a smaller state on equal footing with a large manufacturing one.

While their demand was overruled, consensus also eluded first day of the meeting over the issue of exemption to dealers from the Goods and Services Tax (GST). While some states demanded traders with turnover of Rs 10 lakh or less be exempted, a large number, including Delhi, were in favour of the limit being fixed at Rs 25 lakh in a year.

With tax collected from traders being just 2 percent of the total tax collection, majority view was in favour of a higher exemption limit.

The GST Council, which is headed by Union Finance Minister Arun Jaitley and includes representatives of all the 29 states and 2 union territories, will continue tomorrow.

At the meeting, draft rules regarding GST were circulated and threshold for exemption and compensation norm discussed.

Clarity on base year for compensating states for loss of revenue following implementation of GST, which is to subsume an array of central and state levies including excise, service tax and VAT, will be deliberated further on Friday.

Briefing reporters, Jaitley said the timetable has been set keeping the 1 April 2017 deadline in mind.

"The target also involves the passage of CGST and IGST law at the central Parliament and then by the state legislatures the state GST law in the winter session itself.

"Today, starting from September 22, we roughly have two months time till November 22 to resolve all outstanding issues and therefore a draft timetable was given which also have been adopted," Jaitley said.

The GST Council meeting, which will continue tomorrow, will discuss on the compensation formula and with regard to
the provision for cross empowerment, he said.

"With regard to composition we have finalised our proposal which has been unanimously accepted by the members.
With regard to threshold for exemptions, there are two sets of suggestions which have come. We have converged to those two different views and both on officers and ministers track we will continue the meeting tomorrow and thereafter so that we are able to converge to one particular figure as far as the exemptions are concerned," Jaitley said.

Also, doubts were cast over West Bengal Finance Minister Amit Mitra being appointed vice chairman of the GST Council in absence of the state approving the Constitution Amendment Bill.

Representational image. Reuters

Representational image. Reuters

To get that chair and for any member to be eligible to vote on issues before the Council, their respective states
have to clear the Constitution Amendment Bill on GST.

A consensus on compounding or composition scheme was arrived at the GST Council meeting on Thursday which decided that traders with gross turnover cut-off of Rs 50 lakh will pay 1-2 percent tax, Revenue Secretary Hasmukh Adhia said.

The composition scheme provides for an easier method of calculating tax liability and it allows option for GST registration for dealers with turnover below the compounding cut-off.

The scheme has been introduced in the Goods and Services Tax (GST) regime to reduce the administration cost associated with collection of tax from small traders. Accordingly businesses below a turnover of Rs 50 lakh can pay taxes at a defined floor rate of 1-2 percent, which will be much lower than the GST rate.

The Council in its subsequent meetings would take up the issue of GST rate.

Chief Economic Adviser Arvind Subramanian in his report recommended a standard GST rate of 17-19 per cent.

The GST Council at the end of its meeting tomorrow will decide on the dates for the next meeting of the council.

"The Council will meet for a number of days in quick succession so that other issues such as fixation of the rate etc, and whatever is outstanding from today's meeting could be worked out.

"The meeting has been conducted and gone on in a true federal spirit and therefore what we have seen today is not
any form of division in political lines, obviously people have interest of their own governments and revenues and are entitled to that view point and out of that sense a consensus will finally emerge. I am more optimistic today about the spirit in which the functioning of the Council has begun," Jaitley said.

The next meeting of the GST Council is likely to decide on the Vice Chairman for the Council. The selection would be on the basis of consensus but if the consensus is not reached, the council may go for voting.

As regards exemptions, Jaitley said the Council deliberated on two view points and the council will work
towards converging on one limit.

He said that along with the ministers meeting in the GST Council, a parallel track of negotiations of the officers
would be held on the technical aspects.

"We have discussed threshold. For Delhi, we have said that the threshold for exemption should be Rs 25 lakh," Delhi
Deputy Chief Minister Manish Sisodia said.

Kerala Finance Minister Thomas Isaac said the Council meeting also decided that Empowered Committee will
continue if states want it to continue functioning.

It was also decided that state government officers can attend meeting on behalf of ministers and take part in
discussions but they will not have voting rights.

Adhia, however, said that it was decided that the empowered committee of state finance ministers, chaired by
Amit Mitra, could continue meeting but any discussion on GST would happen only at the level of GST Council.

The Council will on Friday discuss the issues of 'cross empowerment to avoid dual control' and 'threshold' with sates demanding that they be given the legal and administrative power for imposing tax on entities with turnover of up to Rs 1.5 crore.

During the meeting, while Uttar Pradesh opposed the Rs 25 lakh threshold, states like Haryana and Delhi supported the limit. Andhra Pradesh and Telangana demanded a threshold of Rs 10 lakh, Tamil Nadu said it should be kept at Rs 25 lakh.

West Bengal Finance Minister Amit Mitra said exemption limit was "work in progress".

"On the threshold limit, we have a constructive and warm discussion and there will be more thinking on that tomorrow," he said hoping for reaching finality on the issue at the meeting tomorrow.

States, he said, "have spoken their mind (that) we have to continue with federal polity of the country. States have
clear, strong message just as centre was cordial in receiving the ideas."

Sisodia said threshold limit for levy of GST was discussed at today's meeting.

He said the Delhi government pitched for keeping the threshold at Rs 25 lakh as if it is kept at Rs 10 lakh then a
trader doing Rs 60,000-70,000 business a month would come under its purview, "which would be anti-trader."

Some states have been demanding that small traders having annual turnover of up to Rs 20-25 lakh can be exempted from GST, but some are demanding that the limit be kept at Rs 10 lakh. The same limit should be Rs 5 lakh for special category and NE states.

Currently, the threshold for Value-Added Tax (VAT) is Rs 10 lakh in most states.

Before the meeting of the GST Council, Thomas Isaac wrote on Facebook that he was opposed to the provision that the
meeting of the GST council being called in a 7-day notice period which could be further shortened to only two days in case of urgency.

"The agenda gives me an impression that the NDA (National Democratic Alliance) will take unilateral decisions
given that the central government and the BJP-ruled states together form a majority in the council, there is no mention towards arriving a mutual agreement through broad discussions," he wrote.

Updated Date: Sep 23, 2016 08:22 AM

Also See