While the states continue to battle out the contours of the proposed Goods and Service Tax (GST) with the Central government, the Centre is doing well to try and find ways to accommodate as many concerns as it possibly can. Though the inclusion of petroleum products will make the GST more complete, since the states are not in favour of this, what the Centre is proposing is a hybrid where, after all petroleum products are brought into the GST, states are free to levy additional duties to protect their immediate revenue interests. Indeed, to the extent states suffer less loss of revenue due to this, their demand for compensation will also be that much lower. Another proposal is to give states a moratorium of 10 years after which oil products will be made a part of GST.
The other big bone of contention relates to the dual control of the taxable base, with the states protesting the centre’s idea of having a common threshold of taxation, say R25 lakh turnover per year—any firm over this threshold will be taxed separately by both the central and state tax authorities. States argue that since the Centre’s currently taxes companies with an annual turnover of R1.5 crore while states levy VAT on firms with a turnover of over R10 lakh, a R25 lakh common threshold will unleash the Central taxman on several lakh traders. While there is no reason to suspect the Central taxman will behave any worse than the state one, the via media offered here is a lower rate for firms in the R25-75 lakh turnover range, with no obligations to maintain detailed books of accounts for the taxman—the only caveat here is that there will be no input tax credits either. So if firms in this category wish to supply to larger firms who need input tax credits then, at some point, they will have to come into the GST net. The proposal is an elegant one, and in keeping with what the Centre has done in the case of, say, service taxes. While more firms were brought into the net over a period of years, e-filing was brought in for larger firms—but since the e-returns got rejected automatically if the suppliers’ PAN numbers were not entered, over a period of time, this created an incentive for suppliers to start getting PAN numbers as well. Since the principle of compensation has,