6 min read.Updated: 06 Aug 2016, 01:41 AM ISTRemya Nair
Revenue secretary Hasmukh Adhia on government striving to ensure services are taxed at a moderate rate under new regime, and subsuming all cesses
New Delhi: The real challenge to meeting the 1 April 2017 deadline for implementation of the goods and services tax (GST) will be arriving at a consensus with states on important issues like rates and administrative control, revenue secretary Hasmukh Adhia said.
In an email interview after the passage of the Constitution amendment bill to roll-out GST by the Rajya Sabha, Adhia said the government will strive to ensure that services are taxed at a moderate rate under the new regime. A consensus has emerged between the centre and states to increase the revenue threshold under GST to ₹ 25 lakh, though a final decision is yet to be taken, he said.
He also pointed out that subsuming all cesses will mean that the revenue requirements of the centre will have to be estimated at higher levels since the entire tax collected will have to be shared with states. Edited excerpts:
The government is aiming for a 1 April 2017 roll-out of GST but many analysts and the industry are of the view that it is too ambitious. How optimistic is the government of meeting this deadline?
We are very optimistic as always. However, the real challenge lies in the time taken to evolve consensus on various key issues in the GST Council. If the Union and states are willing to spend more time discussing these issues in multiple meetings of the GST Council, it should be possible to arrive at a solution on each issue.
Are you confident that issues like the tax rate, dual control and threshold levels can be resolved in the next three months, given that a consensus has eluded the centre and states over these issues for years?
As I mentioned, it should be possible to resolve issues provided the centre and states show flexibility as well as keenness. Also it will depend on how much time all the finance ministers can spare for discussions in the meetings of the GST Council.
Will all cesses and surcharges be subsumed under GST? Is the government considering the option of keeping out a few cesses and surcharges from GST’s net to finance some of its initiatives?
As per the constitutional amendment clause 12(4)(a), the GST Council shall make recommendation to the Union and states on the cesses and surcharges levied by the Union, the states and local bodies which may be subsumed in GST.
Which cesses will merge will depend upon the decision of the GST Council. If all cesses are merged in GST, the requirements of revenue for the Union government would have to be assessed higher, because the income coming from GST to the Union instead of cess will now have to be devolved at the rate of 42% to the states.
How will the government calculate the revenue base? Will the figures be based on 2015-16 revenue collections of states and the centre?
Yes. We will have to collect the latest revenue figures of the centre as well as of all states.
Is there any estimate of revenue buoyancy that will come in after GST’s implementation?
The committee chaired by the CEA (chief economic adviser) has given an estimate of increase in the tax base of ₹ 2 lakh crore as the optimistic figure for efficiency gain out of better compliance and ₹ 1 lakh crore in the alternative scenario. But this is a figure of increase in taxable base and not of actual revenue gain in GST. I would guess that benefit of better compliance in GST will not come in one year but it will come over a period of five years.
You said it is premature to say that GST rate will be 18%. Does this mean that the standard rate under GST is likely to be above 20% given states’ concerns about revenue losses?
The rate and rate structure can only be based on facts and figures of the existing revenue of states and the centre which are to be discussed in the GST Council. At the moment it is not possible to say yes or no to any such artificial number. The decision on rates will also depend on a list of exempt items, list of demerit commodities, etc.
Services are expected to see a sharp increase in the tax rates levied on them. Is there an option being considered of taxing them at a lower rate? Like goods, will they also be taxed under different slabs?
It is important to take care of services sector at the time of finalizing the rate structure. We cannot suddenly spike the tax on the services sector. The facility of giving input tax credit on goods against services will also give relief to the services sector. We will have to fit services in the slab which is neither too high nor low at the time of deciding on the final rate structure.
Will there be a re-look at the 1.5 crore threshold that is being talked about for doing away with dual control? How will cross-empowerment work? Are states on board for this concept?
These are a work in progress. Final decision will come from GST Council. It is possible to cross-empower each other, and divide the scrutiny cases between states and the centre.
Will the threshold level be raised to 25 lakh? How will you convince states that favour the lower 10 lakh threshold?
For increasing the threshold limit of exemption from ₹ 10 lakh to ₹ 25 lakh there was a discussion in the last meeting of the Empowered Committee held in New Delhi. It was pointed out by the chairman of the Empowered Committee to the members that as per the existing statistics of VAT (value-added tax) and service tax, less than 2% revenue comes from dealers having turnover of less than ₹ 25 lakh but the number of such dealers who are having turnover of less than ₹ 25 lakh is 60% of the total number of dealers. So a major portion of dealers can be given relief by increasing the threshold without losing much revenue. States more or less agreed to this viewpoint. However, the final decision is yet to be taken.
When will the process of revamping the Central Board of Excise and Customs (CBEC) start to prepare for GST? Will the service tax and excise department be merged? How many departments will then exist?
CBEC at present looks after customs, excise and service tax. In metropolitan cities, excise and service tax commissionerates are separate but in other places the work of excise as well as service tax is done by the same commissionerate. The CBEC is working out a plan in which the organizational structure can be recast once GST is implemented.
How challenging is the task of bringing about an administrative makeover for GST—from the point of view of mindset, technology and knowledge?
As I mentioned in the media briefing, “Change Management" is the most important part of this exercise. It will require us to do massive training of officers of the centre and states and also motivate them to accept the change. Also, the massive exercise of reaching out to trade and industry will have to be undertaken. Technology is not so much of a challenge because we have invested a lot of time and money in preparing for it in advance.
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