GST Council Gets Off to Flying Start

The Centre and states made substantial progress on the goods and services tax by arriving at several decisions on the levy at the first meeting of the GST Council, bolstering expectations that the government will be able to meet an April 1, 2017 deadline for its rollout.
The two-day inaugural meeting of the council, consisting of state and central representatives, has set the stage for a discussion on rules and what the eventual rates will be. The council will meet next on September 30 to finalise rules and subsequently on October 17-19 to thrash out the rates.
Given that views among the states and the Centre vary widely on rates, that meeting could see some tough negotiations. The government doesn't want to set the rate too high as that could be inflationary and make it a harder sell, while states are wary of losing too much revenue with a low rate.
On Friday, the council agreed to an exemption threshold of Rs.20 lakh for all states barring the north-east and hill-area states. It also adopted a cross-empowerment model for tax administration, a formula for compensating states and agreed to subsume all cesses into the new tax.
The GST threshold was set at Rs.10 lakh for the north-east and hill states, which had been given a carve-out in the constitutional amendment that paved the way for GST.
Some states, including UP had favoured a lower threshold than the Rs.25 lakh proposed earlier.
Experts welcomed the raft of decisions at the first council meeting.“
The cross-empowerment model will allow taxpayers to restrict their interaction to a single tax authority for central GST, state GST and integrated, or iGST. Central and state GST are two components of a single GST levied on intra-state sales, while iGST will apply to inter-state sales.
Jaitley said all 11 lakh service providers registered with the tax department will be assessed by central tax authorities and new ones will be shared with state authorities after due training.
Assessees with a turnover of less than Rs.1.5 crore annually will be assessed by state tax authorities and those above that through the new cross-empowerment model. Under this model, tax administrators will use a formula to decide which assessees they will audit or register. The taxpayer will then have to interact with one authority.
The Centre is required to compensate states for any loss of revenue for the first five years. Jaitley said the draft compensation formula has been decided and the Centre has agreed to states' demand that FY16 be set as the base year for measuring these losses apart from the payment of compensation at regular intervals on a quarterly basis.
The growth rate formula in revenue is yet to be worked out. Some states want the three best of the last five years to be taken up, others want two outliers among five.

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