GST deadlock continues over high sea taxes;FM hopes resolution

GST deadlock continues over high sea taxes;FM hopes resolution
Stalemate over GST continued with states hardening their positions on issues like territorial jurisdiction over high sea sales and control over tax assessees, even as Finance Minister Arun Jaitley hoped these matters would be resolved at the next GST Council meet.

While April 1 rollout schedule has long been ruled out, non-BJP ruled states put the new implementation schedule not before September. Jaitley was non-committal on the roll-out dates saying "we know the difficulty, we are moving against time".

The next meeting of the GST Council on January 16 would discuss the issue of jurisdiction over assessees as well as try to reach a finality on taxation of territorial waters.

"The IGST law, having 11 chapters, was discussed today. The initial 10 chapters have been approved and some issues remain open because they are in the process of being discussed. We will be meeting again, because the nature of discussion was inconclusive, on January 16 and have a seating to conclude the discussion on those specific points," he told reporters here.

Stating that the issue of territory is a complex issue, Jaitley said the area within 12 nautical miles into the sea is an Indian territory and a question is whose territory is it.

"Conventionally service tax and customs are charged by Government of India in those areas. Some states had, as far as fishing business is concerned the Constitution provides for fishing rights to states in that area. Some states have been levying taxes in the nature of sales tax/VAT," he said

Jaitley said since states have been levying these taxes, they want to continue to levy them, but the contra argument is that high sea area strictly doesn't fall within the definition of state and as per Constitution is an Union Territory. This issue is currently before the Supreme Court.

"The case of states is we should be allowed to raise taxes. It is an issue on which Constitutional solution has to be followed and the solution has to be legally tenable... The issue is very close to resolution but we need a legal response to it, it has to be adequately tested," Jaitley said.

Kerala Finance Minister Thomas Isaac said the other remaining issues before the GST Council include ways to fund the compensation to states for GST rollout and states participation in Integrated GST (IGST).

"Working overtime, it should be possible to meet the deadline of September. I am not very optimistic about rolling GST out in June/July. Because it is a new tax and lot of complexity involved, it would be better to move in after full preparation. So GST, to my understanding, will be implemented from September," he said.

Jaitley said the two main issues that remain to be iron out at the GST Council meet include definition of word territory and that of cross empowerment and dual control. He said Karnataka has suggested some formulation with regard to taxation in high seas, which will be considered.

With regard to the issue of dual control which has been held up for long, he said a majority of states want to find a solution to the issue but the Centre would want to take every decision by consensus.

"I have been consciously avoiding the voting. GST Council is a federal institution and a federal institution is a very delicate organisation. The fact that we have so far been able to resolve the issue by discussion, we want to establish this as a precedent of how the Council functions," he said.

Some states like West Bengal and Kerala want a minimum turnover criteria be fixed to decide who control which assessee, a proposal the Centre is not agreeable to because states lack expertise on levies like service tax.

West Bengal Finance Minister Amit Mitra said his party TMC's election manifesto of 2009 had GST and the party strongly supports the indirect tax regime.

"But we can't have a GST which is non-sustainable, that does not work. Industry is saying that we are not ready for GST. GST Council is going section by section to see if GST can be sustainable," he said.

Isaac said in today's meeting some states wanted the GST revenue from the highest tax bracket to be shared in 60:40 ratio with the Centre, instead of the present 50:50 sharing.

"There are 4 different rates that have been fixed. Highest bracket is 28 per cent and of this how much will be the Centre and state's share, nowhere in the law it defines and it seems to be taken for granted it is 50:50. Ever since the Independence in the Centre-state financial relation the imbalance has been growing wider and states' rights have been curtailed.

"That can be corrected by ensuring that state's share in GST will be 60 per cent. Many states also supported this. The Centre did not respond to the demand but it was decided to be discussed later," he said.

Delhi Deputy Chief Minister Manish Sisodia said he has proposed that traders with turnover below Rs 1.5 crore they should be taxed only by the states. Above that threshold turnover, 60 per cent of the revenue should come to states and 40 per cent should go to Centre.

Asked about GST roll out date, he said it can be implemented only by September.

States have also demanded increasing the number of items on which cess is to be levied to compensate them to deal with revenue loss estimated at Rs 90,000 crore post demonetisation.

Initially, a Rs 55,000 crore GST compensation fund was proposed to be created by levying cess on demerit or sin goods and luxury items, but post demonetisation the compensation amount is expected to go up to Rs 90,000 crore as most states have seen revenue decline of up to 40 per cent, non-BJP ruled states claimed.

As regards taxing territorial waters, he said: "Though SEZ is a state territory, but it is deemed to be an independent territory. Somewhat similar treatment can be given to coastal waters under GST law. The Centre seems to be accepting the position, it has not given its word but will respond on January 16."

He said convergence has been growing between the Centre and states. "The Centre seems to be in a mood to rethink some of the positions that the Centre has been adopting... On the whole the Centre has been taking a step backward and if it really takes one more step backward I think we will have a deal."

Andhra Pradesh Finance Minister too demanded that states be administratively empowered to levy and collect tax on interstate supplies in case of IGST law. 

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