Welcome Consensus on GST

It is heartening to learn that the Centre and the States have filly maged to reach a consensus on the Goods and Services Tax (GST). Until Sunday, there had been a deadlock spanning five consecutive meetings of the GST Council, with States seeking sole powers to control assessees with annual turnovers of up to Rs 1.5 crore. The Centre was not in favour of a horizontal split because it felt that the States did not have the expertise to administer levies like service tax. This could well have been a misplaced fear considering that even the Centre has often had to administer new levies and taxes at different points of time. As such, if the Centre is deemed to be competent enough to cope with such situations, there should be no reason to fear that the States would not be able to do so too. Union Fince Minister Arun Jaitley was also not in favour of dual agencies auditing and scrutinizing each taxpayer because he reckoned that multiple authorities would end up acting at cross purposes. The deadlock over the administration of GST ended on Monday after the Centre agreed to allow States’ control over most of the small taxpayers, though the rollout date was pushed back by three months to July 1. According to the consensus reached on Monday, the split of GST taxpayers between the Centre of the States will be done horizontally with the States getting to administer and control 90 per cent of the assessees with below Rs 1.5 crore annual turnover with the remaining 10 per cent coming under the Centre. The Centre and the States will share control of assessees with annual turnover of over Rs 1.5 crore in a 50:50 ratio. Fince Minister Arun Jaitley insisted that each taxpayer will be assessed only once and by only one authority. Monday’s meeting of the council also resulted in the Centre ceding much of the control to the States. This is as things should be in a federal set-up. The Centre also agreed to the demand of coastal States, allowing them to tax economic activity up to 12 utical miles even though according to the Constitution the Centre has jurisdiction over territorial waters.

The Goods and Services Tax will subsume Central and State levies like excise duty, service tax and VAT. One does not expect any difficulties or disputes over the levy of GST on goods. Most of the goods sold are in packaged form these days and most buyers must be content to buy what they want merely on the basis of what is printed on the containers. Since all Indian manufacturers are not absolutely scrupulous or trustworthy, people must be content to be guided by past experience of goods purchased rather than what is printed on the outer packing. However, the taxing of services is bound to prove quite a bit more difficult than one imagines. The crucial issue will be determining the quality of service. It remains to be seen whether someone unsatisfied with the quality of service offered in hotels and restaurants will be in a position to refuse payment for services or to insist on a reduction of what is charged for unsatisfactory services. One can easily visualize a situation where the number of disputes could well lead to the need for arbiters of service. And this is where the levying of service tax could run into difficulties. It is possible that in the initial stages hotels and restaurants might refrain from adding a separate service tax to their bills and choose to hike their room tariffs and the cost of food, thereby avoiding separate service charges. And hotels that decide to add separate service charges to their bills must also be prepared for protests from unsatisfied guests who might insist on such charges being reduced because they have not been entirely satisfied with the service. It remains to be seen how many hotels will take the objections of their guests in the proper spirit when they are compelled to reduce service charges as demanded by their guests. In any case, there is room for conflict in the administration of GST in certain cases. One hopes that the government has taken into consideration such possibilities.