GST Council agrees on 1 April roll-out, no decision on tax rate, exemption limit

The Centre and states on Thursday agreed on a timetable for the roll-out of the goods and services tax (GST), including a decision on the tax rate and completion of legislative work, although differences on the turnover limit for exemption from the new tax remained.

At the first meeting of the newly-constituted GST Council, states like Tamil Nadu and Uttar Pradesh, with claims of a larger share of the manufacturing base, also demanded a greater say as opposed to the GST's one-state-one-vote principle. This was, however, ruled out.

There was also no consensus on the issue of exemption to dealers from the Goods and Services Tax (GST). While some states demanded that traders with turnover of Rs10 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 per cent of the total tax collection, majority view was in favour of a higher exemption limit.

But, for states in the North East keeping units with a turnover below Rs25 lakh outside the GST cap would result in massive revenue loss as this would mean that 80-85 per cent of the units would be out of the tax net.

"With regard to composition (scheme) 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 those two different views... 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," finance minister Arun Jaitley told reporters.

It was decided that traders with gross turnover of up to Rs50 lakh will pay 1-2 per cent tax, revenue secretary Hasmukh Adhia said.

The scheme offers dealers with turnover below the cut-off rate the option of GST registration, which provides an easier method of calculating the tax liability by compounding liability.

The GST council left a decision on the controversial issues of compensation formula and the demand for state control over units after discussions on Friday, which points to the wide gap still persisting in the stands of the Centre and the states.

Draft rules regarding GST were circulated and threshold for exemption and compensation norm discussed at the meeting.

Friday's meeting will deliberate on the base year for compensating states for loss of revenue following implementation of GST, which will subsume a number of central and state levies, including excise, service tax and VAT.

"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,'' Jaitley said.

"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 added.

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.

On compensation to states for loss of revenue, the finance ministry has proposed that the average revenue growth for the previous three years be taken to calculate the compensation formula. Ministers from Kerala and Tamil Nadu instead want the average for the best three out the last six years to be taken to calculate the average growth.

This will result in the possibility of the centre having to shell out higher compensation, something that it is not keen on.

On the issue of cross-empowerment, several states led by West Bengal want that units with turnover of up to Rs1.5 crore to be under the exclusive domain of states for audit and collection purposes. This, however, was not accepted by the centre.