In bid to bring commitment over introduction of GST, the Finance Minister used carrot approach by announcing in its budget for 2013-14, a compensation of Rs. 9,000 crore as first tranche towards loss to the State Government due to reduction in CST rate. This came as result out of the two-day conclave at Bhubaneswar between the Empowered Committee of Finance Ministers and the representatives of the Union Government in January 2013 in which EC Chairman, Mr. Sushil Kumar Modi gave recommendation of compensation formula wherein 100% CST compensation for 2010-11, 75% for 2011-12 and 50% for 2012-13 should be given to the State government. The State Government is losing big pie of revenue (estimated Rs. 34,000 crore) due to lower rate of CST however, doesn’t make any sense in holding back the much awaited reform which can accelerate the India Growth Story.
The GST rollout is already delayed by 3 years from its original deadline of April 2010 which was first mooted in the Budget for the financial year 2006-07. In the first discussion paper issued in November 10, 2009 paved design and roadmap for GST with dual structure for both Central (CGST) & State Government (SGST) having right to levy tax. A two-rate structure proposed for goods – a lower rate for necessary and items of basic importance and a standard rate for goods in general and similarly single rate for services for both CGST & SGST.
In many of the notions conceived before, the recent developments suggest disparity which may lose charm of GST being simplified tax regime. Here, look at some of these developments –
|1. Uniform GST rate
In the proposal, it was announced that there will be a uniform tax rate across the country so as to have parity and simplicity of the taxes
|1. Floor rate GST with a band
Under the floor rate, there will be a fixed rate with range of minimum and maximum band. This means States can set different rates.
For example, in case goods are travels to more than one state, it will face different rate of GST under the cover of the invoice. This will increase the compliance in terms of charging different tax rates and claiming of input credit.
|2. Roll-out across Nation
As the draft constitution amendment bill, GST was to roll out across Nation without any State being exception.
However, since many states throwing tantrums, Central Government may go ahead with the States in favor.
|2. Phased roll out – State free to decide time of introduction
To stark contrast, the Central Government has agreed to make changes in the Constitution Amendment bill for GST, an option to States to embrace new law as per their will as in case of the current value added tax
This is hamper the flawless design of the GST till the time all the States are on board to reap the benefits for the new tax regime.
|3. Mandatory – no option to walk out
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As per the bill, it was proposed that no State will have an option to walk out of the GST system so as to maintain its exclusivity.
|3. Optional – right to walk out at any point of time
To the contrary, it has been given to understand that State will have right to walk out of the GST system at any given point of time.
Alas! With this, the GST will not be free from the political will and would come into controversy, every time there is a disparity between the different political parties who run the country
|4. Dispute Settlement Authority (DSA) – Constitutional Authority
The DSA, an independent constitutional authority consisting of chairperson and two other members (ranks of retired Supreme Court Judge or chief justice of High court), to adjudicate any disputes / complaints which may come over between the Centre and States over the deviations in the GST structure.
|4. GST Council – Consensus
In the recent meeting, all the States opposed the provision of DSA in the bill rather favored GST council (a joint forum for the Centre & State – consisting of FM & all the FMs of the respective States) to resolve the disputes based on the consensus.
Again, this move will bring deadlock as the resolution will be at the mercy of bunch of ministers having divergent views and political intentions.
|5. GST Network (GSTN) – Single Integrated System
For any new tax regime to get in place, network is a necessity. In April 2012, the cabinet gave nod for creating a National Information Utility (NIU) / Special Purpose Vehicle (SPV) which will provide IT infrastructure.
The GSTN SPV will be incorporated as non-Government private limited company in which the Government will have strategic control. The Centre & State will have stake of 24.5% each while NSDL will have 21% stake and 10% stake by financial institutions
Single network intended to provide a standard and uniform interface for the taxpayers and will share its infrastructure and services with the Central and State Governments.
|GST Network – Options to choose limited services
Three options to be offered to the states for usage of services provided by the GSTN are under consideration.
In the first, GSTN will offer the full range of GST services as a utility which states can utilize.
In the second, “limited service model”, states will use GSTN for common registration, return and payments and have their own software for the remaining GST functions.
As a third option, states can go for “application programming interface model” and have their own software for flexibility.
However, they will have to adhere to the common registration, return and payment formats defined by the GSTN and ensure that the rights of both the states and the Centre are protected in terms of getting information and ensuring timely settlement of share of taxes.
Some of the other disparities include –
To sum up, till the time the constitutional amendment bill is not passed in the Parliament, GST law in place and deadline to roll-out GST, it would be interesting to see how many more changes are still in store and finally, see a modified form of GST different from the one across the world. As true to its image, India is a country of diverse views!
Geet Shah (The writer is a Chartered Accountant)