State finance ministers discuss GST, urge simplicity in administration

A meeting of state finance ministers today sought simplification of the administration of the proposed goods and services tax (GST) and, in fact, failed to reach consensus on the?Narendra Modi government's priority reform measure.

With no chairman after Kerala finance minister K M Mani was forced to resign in the wake of the state's liquor bar scandal, the Empowered Committee of state finance ministers, which was chaired by Delhi finance minister and deputy chief minister Manish Sisodia, decided to meet next month to elect a new chairman.

Sisodia said the panel wanted to focus on simplifying administration of the GST rather than lowering the rate.

''Rates were not discussed today,'' said Sisodia, who chaired the meeting held on Friday. A sub-committee was set up to decide on a threshold below which small businesses would be exempted from the sales tax, he told reporters.

On threshold, Sisodia said there is a "divided opinion" among states.

While the centre is of the view that the threshold for levying central GST (C-GST) and the state GST (S-GST) be kept at an annual turnover of Rs25 lakh, some smaller states want it to be at Rs10 lakh.

"Some states are adamant that it should be Rs10 lakh. Some others said it should be increased because inspector raj will increase if small traders come under GST... So, we thought that we should collect data from all states," Sisodia said.

States, he said, have two options - raise the number of tax payers or decrease the number and levy higher taxes.

A percentage rate has not yet been agreed but a range in the low-to-mid 20 per cent has been discussed, leading to concerns that such a high rate would encourage tax evasion. Sisodia, speaking for Delhi, said he supported a rate of 25 per cent.

"Based on data, a decision would be taken so that it should not be on the basis of prejudice. The sub-committee would submit its report before the next meeting," Sisodia added.

Although the government had planned to roll out GST, which is billed as the most comprehensive indirect tax reform since Independence, from 1 April 2016, it looks difficult as the Constitution Amendment Bill is stuck in the Rajya Sabha where the ruling NDA does not have a majority.

With the winter session of Parliament beginning 26 November, the NDA has to work out a strategy to seek Congress support for passage of the legislation.

The Empowered Committee was in Australia recently, Sisodia said, and the learning from there was to make GST simple and important for effective implementation.

The GST, the most ambitious tax reform since independence in 1947, would unify Asia's third-largest economy into a single market, and could add as much as two percentage points to the economy, the government estimates.
 
Finance ministry officials say introducing the new tax regime could increase the revenues of the federal and state governments substantially as all consumers would pay taxes on most goods and services.

However, many state governments fear revenue losses as a result of GST being introduced, and a parallel discussion is also under way about how to compensate them, complicating efforts to reach a workable compromise.

The GST law would aim to cut red tape for taxpayers by replacing an array of federal and state taxes - ranging from 25 per cent to 30 per cent - while ending the practice of imposing a levy on goods coming from outside a state.