The country’s most ambitious tax reform, the Goods and Services Tax, may be held hostage to the States’ sentiments on demonetisation, going by the public statements of some Ministers on the first day of the fifth meeting of the GST Council on Friday.

“I hope there will be discussions on demonetisation tomorrow because some of the State Ministers said it is affecting the tax collections and will have an impact on GST rollout,” said Manish Sisodia, Deputy Chief Minister of Delhi and also holding Finance portfolio.

The meeting, which will continue on Saturday, is being held amidst concerns by a number of States, including West Bengal, over the impact of the demonetisation on economic growth.

Finance Minister Arun Jaitely, who chairs the Council, is hoping to reach a consensus with States on two issues: approval of the draft model legislation for the Centre, the States and the integrated GST, as well as compensation to the States; and, secondly, the tricky issue of administrative control over businesses.

Most of the State ministers present wanted the Centre to pick up the deliberations from where the Council left off at its earlier meeting. But although a few provisions of the Draft GST Bill were discussed, the dual control issue did not come up at all.

Sisodia confirmed that the meeting did not take off from the points discussed the last time.

Kerala Finance Minister Thomas Isaac was more blunt. He said: “There was no conensus at the meeting. If the GST Bill faces any opposition in Parliament, the Centre will be solely responsible. It has to change its adamant stand over sharing of revenues. Despite our objections, the Centre did not take up this issue for discussions, but started a debate on the GST Bill.”

Horizontal division On the GST law, Kerala, Uttar Pradesh, West Bengal and Tamil Nadu have called for a horizontal division of assesses under the GST: this would give them exclusive control over small businesses that have an annual turnover of less than ₹1.5 crore. There would be cross-empowerment of officials of the Centre and the States beyond this threshold.

“Many of the States are uncomfortable with Central officers’ encroaching into the jurisdiction of the States,” said Sisodia. “Dual control below ₹1.5 crore is not fair on traders or on the State government.”

However, calling for easier registration and compliance procedures, a number of other States and the Union Finance Ministry have argued for a vertical division of assesses, under which both the Centre and State will get a fixed number of assessees.

The delay in securing a consensus is also raising questions about whether the government can meet the April 1, 2017, deadline to roll out the GST regime.

“If the GST is not rolled out from April 1, 2017, it can be introduced from the second quarter of that fiscal year. But the government is stuck, given the constitutional compulsions to roll it out before September 16,” those involved with the developments said.

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