Developments in August 2014

GST was in headlines today (21st August 2014) in Economic Times

FMs agree on Rs 10 lakh limit for levying GST

Date : 20th August 2014
State Finance Ministers on Wednesday (20th Aug 2014) pressed for lowering the threshold limit to Rs 10 lakh for imposing Goods and Service tax (GST) on entities and asked the Centre to specify GST compensation structure for five years in the Constitutional Amendment Bill. The Empowered Committee of state Finance Ministers, which met here to deliberate on various issues connected with GST rollout, regretted that it has yet to hear the response of Centre on the structure of the new tax regime proposed by it. "So far as shape of GST is concerned, we have made recommendation to Central Government after the last meeting.



The state FMs had proposed to keep products such as petroleum, tobacco and alcohol out of GST ambit and had demanded that the exemption list be included in the Constitutional Amendment Bill.

As regards the compensation structure, the states have demanded that a five year compensation mechanism be given by the Centre and same should be made in the Constitutional Amendment Bill.
As regards dual control, the states demanded legal powers, and not only administrative powers, to collect tax from businesses with an annual turnover of up to Rs 1.5 crore.

Under the dual control of traders - by both the Centre and states - in GST structure, taxpayers with annual turnover of over Rs 1.5 crore would be taxed by the Centre, which will later disburse to states their share. Those entities with turnover below Rs 1.5 crore would pay their taxes to states, which would subsequently pass on to the Centre its share.

Source : Business Today

States drop compensation hurdle for proposed Goods and Services Tax

Date : 19th August 2014
With State Finance Ministers having dropped the issue of compensation in lieu of a cut in the central sales tax from the agenda of their upcoming meeting on implementing the Goods and Services Tax (GST), the major hurdle appears to have cleared in reforming India's indirect tax regime.

Seen as a key to facilitating industrial growth and improving the business climate in the country, the GST Bill requires to be passed by a two-thirds majority in both houses of Parliament and by the legislatures of half of the 29 states to become law.

CST was one of the major roadblocks for a GST, which was originally scheduled to come into from April 1, 2010.



Article 268A has not been operationalized in the last 10 years. Operationalizing the Constitution (88th Amendment) Act will fulfill the promise made during the previous NDA regime. Still we do not have the required IT infrastructure to effectively deal with the complexities in the proposed GST regime.

"Some states have been apprehensive about surrendering their taxation jurisdiction, others want to be adequately compensated. I do hope we are able to find a solution in the course of this year and approve the legislative scheme, which enables the introduction of GST," Jaitley had said in his maiden budget speech in the Lok Sabha in July.

On the design of GST, states are insisting that petroleum and alcohol be kept out of its purview . The Empowered Committee of state finance ministers has also demanded that the centre's share of GST should be made a part of the divisible pool between the centre and the states.

The finance minister has assured parliament that the government will seek to move the amendments to the constitution this year itself for implementing GST, besides already assuring states that he would clear their CST compensation dues of about Rs.34,000 crore ($5.5 billion) over a three-year period.

States like Gujarat, Madhya Pradesh and Uttar Pradesh, which were earlier standing in the way of GST, have now said they are not opposed to it as long as their concerns are addressed.

Source : Business Today

Jayalalithaa seeks compensation for losses under Goods & Services Tax

Date : 18th August 2014
The Central Government should provide an independent, permanent compensation mechanism for revenue losses that State Governments will face under the proposed Goods and Services Tax, said the Chief Minister J Jayalalithaa in a letter to the Prime Minister, Narendra Modi.

The GST Amendment Bill should contain such a provision `enshrined in the Constitution itself and not reduced to an instrument of Union policy which may change from time to time’, she said. The demand is based on the State’s experience with the Centre’s compensation mechanism on VAT and the reduction of Central Sales Tax.  Jayalalithaa said it would be simpler to delegate levy, collection and appropriation of the substitutes for VAT, Central Excise Duty and Service Tax to the State machinery with the Centre focusing on inter-State taxation.

The Centre should address state government concerns before moving to the new tax regime.
Issues such as dual rate bands, taxation threshold, inter state GST, commodities outside GST, dual administrative control and compensation should be sorted out between states and with the Centre before the Constitutional Amendment Bill on GST becomes a law.
The Bill also does not allow states levy higher taxes on tobacco and tobacco products. States should be allowed to continue to levy tax on tobacco as the products pose a public health hazard.



Update (21 Aug 2014) :  In the revised draft amendment States are allowed to levy additional taxes on petroleum products. However, this dual levy of GST and an additional tax is not acceptable as a portion of the tax on petroleum products would still be eligible for input tax credit which will be a revenue loss to the State.

Source : Business Line

Centre to give states Rs 25k cr to help push GST

Date : 7th August 2014
Finance ministry is set to immediately release about Rs 25,000 crore to the states to make good their past losses on central sales tax (CST) revenue.

Anxious to keep the promise that a pan-India goods and services tax (GST) would soon be a reality, the government is planning to take a couple of steps soon, accommodating states’ concerns over the proposed comprehensive indirect tax system that analysts and industry vouch for. Finance ministry is set to immediately release about Rs 25,000 crore to the states to make good their past losses on central sales tax (CST) revenue. North Block will also seek the law ministry’s consent to amend the Constitution to give “financial guarantee” to all 29 states against any revenue losses from embracing GST.

The states had pegged their unmet CST revenue losses until FY13 end at Rs 34,000 crore.
The idea is to build consensus quickly on contentious issues through a process of give-and-take so that a Bill to amend the Constitution to facilitate a new tax regime could be tabled in the Lok Sabha in the winter session of Parliament, sources told FE.

According to sources, in return for releasing compensation and for a constitutional mechanism to deal with “GST losses” of states, the central government expects state finance ministers to drop their demand for keeping petroleum and alcohol out of GST through a provision in the Constitution itself. Sushil Kumar Modi, former chairman of the empowered committee of state finance ministers, told FE that petroleum products should not be constitutionally barred from GST. He added that the GST Council proposed in the Constitutional Amendment Bill could decide when to subsume petroleum products in GST.

The Centre is willing to keep GST rate on these items at zero initially, but is against excluding them constitutionally, which will make it difficult to bring them under the ambit of GST in the future.
Only a small part of the R9,300 crore approved by Parliament in the Union Budget for FY14 as CST compensation was released to states. For extra funds, the finance ministry can seek supplementary demands for grants in any of the coming Parliament sessions.

States insist on a financial guarantee under the Constitution for compensating GST losses saying their experience of getting compensation for losses on account of replacing sales tax with value-added tax was miserable.

“We can certainly introduce the Constitution (115th Amendment) Bill in the winter session, after which it will have to be referred to a new parliamentary standing committee, which would be set up in the next few days,” said a person familiar with the discussions in the government.

An earlier version of the Bill that was reviewed by the previous standing committee led by the BJP’s Yashwant Sinha had lapsed at the end of the UPA government’s term. The Sinha panel had taken about three years to give its report on the earlier Bill, which indicates that it might take at least a couple of years for the next panel to give the final version of the Bill.

Source : Financial Express