9th GST Council inks breakthrough on dual control

The 9th GST Council meeting, held on January 16, 2017, saw a major breakthrough as the council agreed on a formula for division of administrative control over taxpayers between the Centre and states. The agreement was reached after weeks of intense negotiation between the Centre and the states over the contentious issue of dual control.

The GST Council, chaired by Union Finance Minister Arun Jaitley and comprising of state finance ministers, agreed that the Centre will administer 90% of taxpayers with annual turnover of less than Rs 1.5 crore, and the remaining 10% will be under the control of the states. For taxpayers with annual turnover of over Rs 1.5 crore, the division of control will be 50:50 between the Centre and the states.

This is a significant development as it paves the way for the implementation of the GST, which is slated for July 1, 2017.

Background

The GST, which aims to replace multiple indirect taxes with a single tax, was first proposed in the Union Budget of 2006-07. It has taken over a decade for the GST to become a reality, with the passing of the Constitutional Amendment Bill in August 2016 and subsequent ratification by more than half of the states.

One of the key issues that dogged the implementation of the GST was the division of administrative control over taxpayers between the Centre and states. Both the Centre and states wanted control over the entire taxpayer base to ensure that there was no revenue loss. However, this led to a deadlock, with neither side willing to cede ground.

The breakthrough

The breakthrough came after the Centre agreed to let go of its demand for control over taxpayers with annual turnover of less than Rs 1.5 crore. The states, on their part, agreed to let the Centre administer taxpayers with annual turnover of over Rs 1.5 crore.

The agreement is seen as a win-win for both the Centre and states. The Centre gets control over the majority of the taxpayer base, which will ensure that there is no revenue loss. The states get control over a significant portion of the taxpayer base, which will give them a measure of autonomy in tax administration.

Impact

The agreement on dual control is a major step forward in the implementation of the GST. With the issue of administrative control resolved, the GST Council can focus on other issues, such as tax rates, exemptions, and the GSTN (Goods and Services Tax Network).

The GST, once implemented, is expected to have a significant impact on the Indian economy. It will make the country a single market, reducing the cost of doing business and boosting economic growth. It will also simplify the tax regime, making it easier for businesses to comply with tax laws.

Conclusion

The breakthrough on dual control is a significant development in the implementation of the GST. It is a testament to the spirit of cooperative federalism that has characterized the GST Council's functioning. With the GST slated for implementation from July 1, 2017, it is hoped that the remaining issues will be resolved in a timely manner.