GST Council approves law for compensating states’ revenue loss
Making some headway, the GST Council on Saturday approved a law to compensate states for any loss of revenue from implementation of the new national sales tax but deferred approval for enabling laws to next meeting. Legal language of a half-a-dozen provisions of the Central GST (C-GST), Integrated GST (I-GST) and State GST (S- GST) laws held up approval but Finance Minister Arun Jaitley expressed hope to get them approved in the next meeting on March 4-5 so as to take them to Parliament in the second half of the Budget session next month.
The Council will get down to fixing rates of taxes for different goods and services by fitting them into the four approved slabs of 5, 12, 18 and 28 per cent, he said. Jaitley said the GST Compensation Law that provides for compensating states that incur losses because of implementation of the Goods and Service Tax (GST) in first five years was approved by the Council today.
“It will not come before the Council anymore and will be taken to the Cabinet for approval and will make efforts to pass it in the second leg of Budget session (beginning March 9),” he said. The Finance Minister also hoped to get the C-GST and I- GST laws approved in the month-long session. S-GST law, after approval of the Council, will need to be passed by each state legislature.
“During the legal drafting of the C-GST and S-GST and I- GST laws certain contentious issues came to the fore and it was necessary to place all the issues before the Council again to take specific directions,” he said. The Council gave its suggestions to the legal sub-committee, comprising officers of the Centre and states who are drafting the model laws, on issues like composition of appeal at tribunal to adjudicate on disputes, delegation of powers and exemptions during transition phase.
Other issues included taxation of services and VAT in work contracts, composition limit and definition of agriculture. “After incorporating these clarifications, on March 4-5 meeting in Delhi, these laws will be cleared,” Jaitley said. GST, which will replace a plethora of central and state taxes, is a consumption based tax levied on sale, manufacture and consumption on goods and services at a national level. Under it, C-GST will be levied by the Centre, S-GST by states and I-GST on inter-state supply of goods and services. Different indirect taxes of central excise duty, central sales tax CST and service tax are to be merged with C-GST while S-GST will subsume state sales tax, VAT, luxury tax and entertainment tax.
There was expectation that the GST Council will approve the C-GST, S-GST and I-GST laws to enable the new indirect tax regime to roll out from July 1 but while there was a broad agreement, legal language of some clauses held up the approval, Jaitley said. “Compensation law final draft has been approved. For the rest of the laws, clarifications have been given on some of the questions raised during legal drafting. On March 4-5, the Council will hopefully approve the legally better draft of model GST law and in Parliament session beginning March 9 we will introduce these laws to pass them. Simultaneously, S-GST laws will go to legislative bodies of the states. That will also be discussed in March 4-5 meeting,” the FM said.
He further said that issues regarding I-GST law have also been sorted out. “In the legislative drafting, we have moved ahead and if the remaining provisions are approved in March 4 -5 meeting, then we can pass it in the next Parliament session.” The next step of putting commodities and services in tax slab will be taken up. An array of 53 clauses have been approved, according to officials. Jaitley said, “Simultaneously after March 4-5, our officers will then start fitting each commodities into the slabs and we will require one major meeting after March 4-5 to give approval to those specific items in relation to each of the slabs.”
Asked about the GST Council being against giving powers to official auditor CAG to seek additional information for its audit of revenue, Jaitley said the Comptroller and Auditor General (CAG) is already empowered under the CAG Act to call for any information from the government in relation to public finances.
“That is the power which the CAG already has under the CAG Act. Under a taxation law, it need not be separately given. There was a suggestion which had come forward, but the members felt that since this power is already there in CAG Act (and that) the Income Tax Act (does not provide) has no separate power then why should the indirect tax law have a separate power,” he said.
The GST Council, headed by Jaitley and comprising of representatives of all states, held its first of the 10 meetings so far outside the national capital. He said the critical anti-profiteering clause in the draft law to ensure that the benefit of lower taxes gets shared with consumers was not discussed in today’s meeting. Kerala Finance Minister Thomas Isaac said most of the time of the Council was invested over administration of powers over assessees between Centre and the state as the central bureaucracy was feeling left out and wanted a greater share.
Officials said only minor legal vetting of the draft laws is left which after getting the language legally right will be circulated to states by March 1. Also, a separate UT-GST law, on lines of S-GST, needs to be enacted for Union Territories.