New Delhi: Negotiations over GST remain stuck on the issue of control of tax payers in the new regime even as the GST Council today made headway in approving most of the clauses of supporting legislations.
While the April 1 rollout target looks virtually impossible, GST Council tweaked the compensation mechanism to allow bi-monthly payment to states instead of previously decided quarterly payout.
The issue of dual control and the all important IGST legislation, which has been hanging fire for past three meetings, will be taken up at the next meeting on January 3-4. Briefing reporters after the 7th GST Council meeting here, Finance Minister Arun Jaitley said draft CGST and SGST, which are mirror images of each other, were cleared along with compensation law.
"If you ask me what are the principle residuary items left, the main item of course is the IGST and dual empowerment issue. The second is the legally vetted language which will be placed in the next meeting on January 3-4," Jaitley said, adding that the Council will take up items in each tax bracket after that.
While the compensation was earlier proposed to flow from the cess to be levied on luxury cars and sin goods like tobacco, demonetisation has led states to believe that more number of them would need support to make up for the revenue loss arising from GST roll out.
It was previously thought that 4-5 states will need compensation for revenue loss, the economic activity being impacted by demonetisation of 500 and 1000 rupee notes would necessitate support to even more states because of loss in tax revenues.
According to sources, the 'source of compensation fund' part of the law is being redrafted to state that compensation amount would be raised from cess and "any other taxes as the GST Council decides'.
The Finance Minister said all decisions have been take through consensus so far and no decision has been taken through "vote or give and take. At the end of all the decisions, it is rationale that prevailed."
Asked about industry needing three months time after legislation is passed, he said, "That we will decide once we cross all bridges. I am not going to bind myself...our effort is to clear it as quickly as possible. I think we are making a reasonable headway."
When asked if April 1 deadline still stands, he said, "I am trying my best to do that...left to myself I would like to do that." On the issue of dual control, he said there is only one law and two bureaucracies so the question is how the jurisdiction will be divided for audit management. "It will be resolved through deliberative mechanism," he added.
Several state ministers were of the opinion that compensation arithmetic would now have to be reworked as the Rs 55,000 crore compensation decided before demonetisation may not be enough as states revenues may take a hit.
West Bengal Finance Minister Amit Mitra said states may suffer revenue loss anywhere between 20-30 per cent in the third and fourth quarter of the fiscal. He said the number of states which had to be compensated for loss of revenue may go up due to impact of demonetization on their tax collection.
Jammu and Kashmir Finance Minister Haseeb Drabu said the GST Council can look into various options, including increasing the number of years for compensation from 5 to 6 or set up a revolving fund in case the amount shoots above Rs 55,000 crore.
Minister K Pandiarajan, representing Tamil Nadu, was of the opinion that there is "good chance" that compensation amount required would be more than the specified amount of Rs 55,000 crore.
The meeting did not discuss the quantum by which the total compensation would have to be increased post demonetisation. Various multilateral agencies and RBI have lowered growth forecast for the current fiscal.
RBI has reduced it to 7.1 per cent from 7.6 per cent earlier, while ADB expects the GDP expansion at 7 per cent, down from its earlier projection of 7.4 per cent, due to the impact of demonetisation on economic activities.
During a debate in Rajya Sabha, former Prime Minister Manmohan Singh had said that demonetisation would lead to dip in GDP growth by at least 2 per cent. Jaitley said the states would be fully compensated for any revenue loss for initial five years and the compensation law has to be approved by Parliament only.
"The basic draft of that has been approved. There was one clause in particular about the source of the compensation fund whose language will be redrafted and the legally vetted language will be placed before the next meeting of Council," he said.
Asked whether states have sought more GST compensation following demonetisation, Jaitley said the compensation is only related to GST implementation. "Finally it was decided that compensation would be paid to states every two months," he said, adding that every state would try to collect their revenues.
In the January 3-4 meeting with state finance ministers, Jaitley will also hold pre-budget discussions. Asked if demonetisation could derail GST discussion, he said, "We are living in a real world and politics is part of the real world and at the end of the day one has to assume that elected representatives in Centre and states have a sense of responsibility. So far, despite initial divergence of views it all ends with convergence".
In its three meetings the GST Council discussed the subsequent draft laws and the primary draft of the Central GST and State GST laws comprising of 197 provisions and 5 schedules has been approved.
"There were some portion which were left out because either some representation was made by state government or we could not reach a consensus... Now with regard to the draft only those blanks remain which relates to dual control and cross empowerment. Subject to that, the rest of draft has been approved," Jaitley said.
He said since there were some changes in the CGST draft, the language has to be given a legal shape and therefore the legally vetted copy of the draft will be circulated to all states.
"The CGST has to be approved by Parliament and SGST by the state legislatures. These two laws will be a mirror image of each other. So that is one important step which we have completed and a significant headway has been made," Jaitley said.
Asked about April 1 deadline, Jaitley said "I am trying my best to do that. I do not want to hasten the process of discussion and I do not want to delay the discussion".
