Centre may agree to States having sole control of small businesses under GST

The Centre may accept the demand of the States that small traders should be under the administrative control of States under the new indirect tax regime – GST.

This was a key demand of the Empowered Committee of State Finance Ministers at a recent meeting with Finance Minister Arun Jaitley, where it had unanimously rejected a proposal of the Central Board of Excise and Customs for dual control of businesses with an annual turnover of less than ₹1.5 crore.

“The issue will be looked into in detail once the Constitution Amendment Bill for GST is passed, hopefully in the Monsoon Session. We will have further discussions with the States on the issue,” said a senior Finance Ministry official.

However, sources indicated that the Centre may accede to the demand to ensure that States come on board for a smooth roll out of GST from April 1, 2017. In turn, it may also seek some voice in the decision on rates under GST.

“This has been a long pending area of discussion even internally in the Union Finance Ministry. There are concerns of revenue authorities over the administrative preparedness of States. But there is another counter view that States may be in a better position to administer these small businesses,” said another official.

States had opposed the move on the grounds that dual control could impact their fiscal authority. Further, facing two revenue authorities, as proposed under dual control, would be an administrative hassle for such businesses.

“The dual control issue needs to be resolved for the GST to happen,” Amit Mitra, Chairman of the Empowered Committee of State Finance Ministers and West Bengal Finance Minister, had said after the meeting last week.

Tax experts too believe that dual control under GST could create unnecessary complications for industry, as it would bring the same transaction under two different authorities and raise concerns over a possible disagreement between the two.

“Single control of small businesses is a better idea for GST,” said Rajiv Dimri, leader indirect tax, BMR & Associates.

It would also subvert the promise of ease of doing business, another expert said, noting that even separate thresholds for the Centre and the State will not help.

Sources said the government is likely to hold another round of discussions with States after the Monsoon Session of Parliament to discuss these issues.

“Much depends on the fate of the Constitution Amendment Bill in Parliament’s ongoing Session. A lot of modalities of GST still have to be resolved,” said another person familiar with the development.

Accepting a key concern of the States, the Centre in fresh amendments to the Constitution Amendment Bill has introduced a provision to guarantee compensation for a period of five years for any revenue losses arising from GST to States.

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