GST Council Meet
THE Kerala Finance Minister tweeted yesterday:
• Worst fears confirmed, GST to be regressive. Tax on luxuries to be reduced to 26%. Tax on necessities to be raised to 12%.
• Central govt want the entire Service Sector to be left to them. This is strongly unfair.
• GST Council still stuck at compensations & on how we should treat exemptions & CSTs. Unanimity across states. Centre unwilling to budge.
• Central govt. wants to impose a cess on GST to compensate the states. This is in contradiction with the concept of GST itself.
• Compensation to be limited to taxes subsumed into GST.
• GST assumed to grow by 14% for all states.
• At last a solution to compensation issue.
He also blogged:
THE introduction of VAT in the mid 1990s robbed the states of much of its taxation powers and curtailed their fiscal autonomy. With the constitutional amendment and introduction of the GST what had been prevailing de facto has now been de jure abolished. Now states no more have independent powers for indirect taxation, except on alcohol and petrol. They are forced to abide by the decisions of the GST Council where no decisions can be made without the concurrence of the central government, not even if all the states take a united position. All decisions of the council require three fourths majority and the central government holds one third of the votes. The only saving grace is that the states have now access to service tax which was till now monopolised by the central government.
Almost all exemptions and tax concessions are going to be removed. The general principle that is being adopted is that if any area or sector has to be supported, it cannot be through the tax concession route, but, through direct budgetary support. What is the budgetary support that would be given for traditional industries like handloom and khadi when the tax exemptions are withdrawn? Currently, there is no excise tax on the small sector below the threshold of Rs 1.5 crore turnover. With GST this protection will be removed. All units above Rs 20 lakh turnover is within the tax net. What should be the demands to continue to provide the protection for small scale sector? I felt really depressed that even the national representatives of small scale manufacturers had not given a thought to this problem that they are going to face in the immediate future.
There are very serious differences of opinion regarding the administrative machinery. There is an agreement that the central government would not directly deal with goods tax payers below the turnover of Rs 1.5 crores. But there is no such consensus with regard to the service sector. The central government is trying to grab the entire service sector including deemed goods like works contract, the composite tax payers who deal in both service and goods and even the new service entrants into the tax net. This is going to be a major issue of contention between the centre and the states .