The GST Council is resolving tricky issues like Dual Control through consensus. A good signal.
GST and Dual Control – The road ahead
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The biggest tax-reform in India – the Goods and Services Tax regime – is set to transform Indian economy in a big way. The topmost decision making body is the Goods and Services Tax Council (GST Council). Its working has been admirably federal in character, and logical in approach. Business and enterprises must be governed by only one authority (either Centre or State) to avoid any confusion. The GST Council agreed on this core principle, through the Services Sector will not be administered by the Centre except in complex interpretation-based cases. Formula for administrative control is → States will control audit and scrutiny of 90% of taxpayers with less than Rs.1.5 crore annual revenues. Rest will be with Centre. All cases to be selected randomly. For larger revenue cases, equal division to be done.
GST rollout date in India is 01 July, 2017. Industry in any country needs ample time to prepare itself internally. Service Tax rates in India are likely to be raised, though not very substantially. The laws governing Central GST (CGST) and Integrated GST (IGST) will be separate, and are pretty complex with lot of loose ends. The classification of goods and services that will fall in various rate slabs – 0%, 5%, 12%, 18%, 28% – will be crucial. In the long term, unless the rates are moderate and the tax base wide enough, it will be of little use to India. Radical (tax) reforms need a complete new thinking. Using benchmarks of the past may not be a good idea. A standard rate of 18% for most goods will be a great idea. (So higher consumption of these will mean higher production, and more tax collected). If large-scale consumer consumption is to be incentivized, thereby pushing manufacturing, then FMCG should never be in 28% slab.
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