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GST - Major Breakthrough - Centre & States almost-agree for Rs 10 lakh exemption threshold limit

TIOL - COB(WEB) - 189
MAY 27, 2010

By Shailendra Kumar, Editor

IF TIOL Netizens decide to go by the general media reports on what happened last Friday when the State Finance Ministers met as members of the Empowered Committee on GST in New Delhi, many of them may tend to believe that it was a grand fiasco! What was widely reported post-event was the statement of EC's Chairman, Mr Asim Dasgupta, who said that the Union Finance Minister has indicated to him that he may go beyond the compensation corpus suggested by the 13th Finance Commission if the States agree to board the GST-bus along with the Centre. He also revealed that the States have been looking for bigger compensation package not only for the possible revenue loss in the wake of GST-switchover but also for the cut in the CST rate last fiscal. The only other member of the Committee who spoke to the media was Bihar Dy Chief Minister, Mr Sushil Kumar Modi, who guardedly uttered only a few words relating to the GST rate and the exemption threshold-level.

However, the inputs reaching TIOL Editorial from various sources who attended the closed-door meeting weave a different and much more optimistic story. The last Friday meeting cannot, by any stretch of imagination, be dubbed as a failure to thrash out something substantive. Although the Union Finance Minister's Advisor, Ms Omita Paul, who was slated to attend the meeting, did not keep her 'diplomatic tryst' and skipped the meet but the States did discuss at length the exhaustive comments of the Central Government, given in response to their 'First Discussion Paper'. Most participants in the debate expressed their agreement with the Centre's view that if States go for Rs 10 lakh threshold limit, the Centre would also like to ride the same limit. The States veer around the view that the Centre is free to choose its own limit and if it decides to stick to the limit, proposed by the States, it can.

In other words, if it happens, it should be treated as a major breakthrough by all the stake-holders as the decision to fix the threshold limit would certainly lay a strong foundation for other statistics to be considered for determining other parameters. For instance, if it is going to be Rs 10 lakh exemption, it would mean not less than 50 lakh assessee-base for both the Centre as well as the States. If it is going to be 50 lakhs taxbase, it would help thaw the frozen thoughts over the 'Revenue Neutral Rate' (RNR) which would in turn help arrive at a possible range of GST rates to be chosen by all the parties.

Another important input which our sources confided in us is that the EC's Members did not take kindly the recommendations of the GST Task Force of the 13th Finance Commission. Many of the Members were flabbergasted by the Rs 50,000 Crore compensation corpus suggested by the Task Force provided the States opt for what the Task Force fondly preferred to call - 'The Flawless GST'! Those who know Mr Dasgupta as ''Mr Cool'', were in for a different hue of experience when his outbursts questioned the mandate of the 13th Finance Commission to set up a Task Force on GST. Some Members joined the cacophony of protest over the compensation package suggested by the Commission and expressed their keenness to know how did the Commission fund the expenses of this 'Task Force' which was never a part of its terms of reference! (See what TIOL reported in Cob(Web) Column in December on this issue - ''Finance Commission Task Force Report on GST - The Enemy within!'')

TIOL does share the feelings of the State Finance Ministers and strongly believe that the 13th Finance Commission did exceed the mandate given to it by the Centre. To rub salt to the wound, the Commission chose a Direct Tax officer to head the Task Force, suggesting measures for indirect tax reforms!

Anyway, let's keep an eye on the follow-up meetings of the EC's Members with the Union Finance Minister, Mr Pranab Mukherjee, sometime in June. The States are going to discuss the compensation package for first, the CST phase-out, and also the quantum of compensation for the GST roll-out.

Meanwhile, the CBEC which is going to be the GST implementing agency, is learnt to have fixed its eye-balls on Rs 10 lakh threshold limit which would hugely expand its taxbase from 11 lakh to about 50 lakh. If that is going to be a possible reality, how will it be implemented and administered is going to be a major challenge before its topbrass. Not to miss any opportunity, the CBEC which is going to hold its annual Chief Commissioners' Conference on June 15-16, is learnt to have discarded the jaded format of organising the event where most senior Chief Commissioners are timed to talk about their revenue collections and possible shortfalls. As against the traditional format which provides some snoozing space to some Chief Commissioners, the CBEC is going to form Five Groups which would have closed-door brain-storming sessions on issues like how to deal with 50 lakh GST assessees; the requirement of human resources and the administration; how to improve productivity per officer; Revenue Management and Trade Facilitation for Taxpyers's Needs. No preaching is the resolve of the Board. All these Five Groups would be allowed to make detailed presentation next day, and the Board would then take stock of the empirical suggestions for the policy-making. The first day session is going to be dominated by a barely one or two speeches and then the presentation on 'Best Practices' adopted by certain zones. Some of these practices would be recommended by the Board for other Zones to follow.

Going by the latest developments and the preparations of the CBEC at a feverish pitch, it is indeed difficult to say that April 1, 2011 is an impossible deadline to realise. What may make it further possible is the EC's decision to set up a Working Group on IT Infrastructure which is going to be headed by the well known IT wizard, Mr Nandan Nilekani. Mr Nilekani has already increased the frequency of his interaction with the CBEC, and this Working Group may enable him to build consensus at least on the IT architecture which is so vital for the GST roll-out. TIOL along with its Netizens wish all stake-holders good luck for making April 1, 2011 an achievable deadline!