The constitution of the Goods and Services Tax (GST) Council with the Union Finance Minister as its chair was approved on Monday, with powers to recommend the indirect tax rate and establish a disputes redressal mechanism, among other matters, even as analysts said that implementing the tax by the targeted deadline would depend on the Council’s ability to build consensus on issues.
The decision was taken at a cabinet meeting presided over by Prime Minister Narendra Modi, soon after the President gave his assent to the relevant Constitution amendment bill, followed by a notification in the Official Gazette — that also took effect on Monday.
“The GST Council will consist of the Finance Minister, Minister of State of Revenue (both from the central government) and state finance ministers,” the Union government’s Principal Spokesperson Frank Noronha said, soon after the cabinet meeting.
In effect, the empowered committee of state finance ministers on GST will be co-opted into the council.
“The GST Council Secretariat’s costs will be borne by the central government. GST implementation steps are ahead of schedule so far,” Noronha added. “The GST Council Secretariat shall be manned by officers taken on deputation from both the central and state governments.”
The secretariat will work out of the national capital. Officials said Finance Minister Arun Jaitley has already convened the first meeting of the GST Council over two days from September 22 here.
Apart from recommending the tax rate and the mechanism to resolve disputes, the council will also make suggestions in areas such as goods and services that may be exempted, model laws and rules on the subject, special rates during adversities and special provisions for some states.
The GST is a pan-India indirect tax that proposes to subsume most central and state taxes such as value added tax, service tax, central sales tax, excise duty, additional customs duty and special additional customs duty, into one pan-India tax.
The government intends to implement the new pan-India indirect tax regime from April 1, 2017.
Earlier on Monday, the Finance Ministrynotified the provisions of the Constitution Amendment Act that allows for setting up the GST Council.
According to the provisions of the Constitution Amendment Act, the GST Council will have to be set up within 60 days of its notification.
The Central government will have to pass the Central GST and Integrated GST Bills, while the states will need to approve their respective GST legislations.
The states will, however, be able to adopt a GST structure that is different from that recommended by the GST Council, whose recommendations will not be binding on the states.
The Central government is to compensate the states for revenue losses for the first five years after the implementation of the GST if the states’ revenues come down under the new tax regime.
Meanwhile, at a meeting here with the Empowered Committee of State Finance Ministers on GST last month, India Inc pitched for an 18 per cent standard rate on the ground that this rate will generate adequate tax buoyancy without fuelling inflation.
The opposition Congress had earlier demanded an 18 per cent cap on the GST rate.
The Federation of Indian Chambers of Commerce and Industry (Ficci) suggested that to check inflation and the tendency to evade taxes “the merit rate should be lower and the standard rate reasonable”.
On the implementing of GST, Ficci said that in order to provide adequate time to trade and industry to prepare “for a hassle-free rollout of the GST regime”, a minimum of six months should be permitted from the date of the adoption of the GST law by the GST Council.
Revenue Secretary Hasmukh Adhia on Monday said the government was ahead of the time schedule on the new indirect tax regime.
“As far as administrative requirements are concerned, we are fully geared. We are monitoring IT preparedness of states, we are on track. We are all geared up for the April 1, 2017 deadline,” Adhia told reporters here.
Commenting on the development, Pratik Jain of consultants PwC India said in a statement: “Implementation of GST from 1 April, 2017 would be contingent upon the speed at which the GST Council is able to build a consensus on issues such as rates, exemptions, dual control etc.”
“While the central government is working at the light speed to meet the April 1, 2017 timeline, the level of preparedness at the end of state governments needs to be closely monitored, one sure indicator of which will be timely roll out of State GST laws,” said Rajeev Dimri of BMR & Associates.
“Its high time that businesses roll up their sleeves to work towards creating a GST compliant internal set up by the go-live date,” he added.