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Policy Update
 
GST: Partial But Welcome Progress: The Goods and Services Tax (GST) Council has done well to clear a Bill that guarantees to fully compensate states for five years for any revenue loss during transition to the new tax regime. A legal backing provides comfort, but there should be ways to prevent states from slacking off on revenue collections. GST subsumes all indirect levies and avoids cascading of taxes, leading to potential revenue loss for states, but they will gain from being able to tax services. A precise estimate of gain or loss is not possible at this stage. Sensibly, states will be compensated on the basis of revenue projections from 2015-16 -when growth and revenue collections were buoyant.

A protracted slowdown due to demonetization would hurt their revenues next year. In any case, the Centre will have to bear an extra fiscal burden if states have to be compensated for revenue shortfall. So, the need is to change the approach to sharing taxes with states. There is a compelling case to take the central goods and services tax (CGST) out of the divisible pool of taxes, leaving collections from income tax, corporate tax and customs du ties to be shared with states. Such a change in approach will, at least partially, safeguard the Centre's revenues.

The tough part -of fixing the tax rates for different commodities under the four-tier GST structure, deciding the legalities in the Central GST Act, the Integrated GST Act and the State GST Act, decoding how to settle disputes and prevent taxpayers from having to face multiple levels of the administration to comply with the tax -is reportedly still to be settled. Economic Times in a leading article, has suggested that the GST Council should drop the anti-profiteering mechanism to ostensibly keep a check on the pricing policy of producers. It goes against the grain of a non-adversarial tax regime.

The Centre is hopeful of rolling out GST on July 1. ET says, we reiterate that it makes sense to fix the launch date three months after the final state and central GST laws are passed and rules notified in order to enable companies to be ready with their accounting systems to meet the requirements of the new tax.
(ET, Feb 20, 2017)
 
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