GST Council meeting begins in Srinagar today to finalize tax rates3 min read . Updated: 18 May 2017, 06:02 AM IST
The two-day GST Council meeting in Srinagar that begins today will see Arun Jaitley and state finance ministers decide on tax slabs for goods and services
New Delhi: The goods and services tax (GST) Council, chaired by Union finance minister Arun Jaitley and including representatives from 32 states and Union territories as members, will put together the final shape of the indirect tax regime set to kick in from 1 July at its two-day meeting starting here on Thursday.
The Council, where neither Union nor state governments can push through decisions without consensus, will decide on the GST rate that individual commodities and services will attract with the aim of making the transition from the prevailing fragmented tax system revenue-neutral. The meeting will be the Council’s 14th and final one before the roll-out of the largest tax reform since Independence.
The Jammu and Kashmir government is hosting the Council meeting, treating all the visiting ministers as state guests, conferring them the required security. Twenty four state ministers have confirmed their participation. The border state has played key role in making GST a reality. A major breakthrough in the journey towards GST was achieved when J&K chaired the erstwhile Empowered Committee of state finance ministers that reached a consensus with Jaitley in December 2014 on the design of GST within months of the NDA government assuming power at the Centre. J&K finance minister Haseeb Drabu told Mint in an interview published on 17 May that the Council meeting in the state signifies its role in national policymaking.
Two officials who are privy to the discussions in the Council said on condition of anonymity that the fitting of commodities and services into the rate slabs has been provisionally done, and now needs to be signed off by the Council.
Also, more items that are currently exempt from central excise duty and state-level value added tax (VAT) will be brought into the GST net. At present, around 99 items enjoy exemption from VAT, while about 250 items are exempted from central excise duty. Under the new regime, there will be a common list of GST exemptions, which are in the nature of essential items of everyday use like foodgrain.
The Council will also clear four sets of rules relating to input tax credit, valuation, transitional provisions, and the composition scheme at its meeting. With this, the legislative work will get completed at the Union level. At the state level, more than 12 states have already cleared their respective state GST laws. They will now have to notify rules under those laws. Before the end of May, all states are expected to compete the legislative work related to GST.
At the technical level, GST Network (GSTN), the company that will manage millions of invoices and GST returns to be filed by companies, has already allowed companies to test the interface of their business software with that of GSTN’s to ensure that the transition is smooth. It is also testing the matching of invoices by different businesses in the supply chain to make sure that tax credits are available to businesses without any hassle.
However, there could be initial hiccups. “There certainly will be teething problems. By 10 August, companies have to file GST returns for the month of July and tax credit settlement will happen shortly thereafter. We will know how the system works when invoice matching for the purpose of tax credits takes place. The Rs20 lakh threshold for GST means that many small entities will be covered by GST. It remains to be seen how prepared they are," another person with knowledge of the discussions in the Council said, also on condition of anonymity.
Anita Rastogi, partner-indirect tax, PwC India said that finalizing the draft rules and announcement of rates for specific goods and services at this week’s Council meeting is crucial considering that companies have only about 40 days to prepare for the implementation of GST from 1 July.
While fitting all commodities and services into different tax rates, the Council’s idea is to place them at a rate that is closest to their effective tax rate at present. That would involve taking into account the reliefs given at present in the form of applying the tax rate on a partial value of the sale and also the inefficiencies in the current tax system.
Services are likely to be taxed at two slabs--12% and 18%-- while goods are to be taxed at five different rates—5%, 12%, 18%, 28% and 28% plus cess. The gems and jewellery industry is likely to get a special rate between 2% and 5%.
R. Muralidharan, senior director, Deloitte in India said that small and medium enterprises (SMEs) need to gear up for the transition. About 95% of the industrial units in India are SMEs and this sector accounts for 40% of value addition in the manufacturing sector.