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GST threshold fixed at Rs 20 lakh, rate to be decided in Oct

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New Delhi : In a big step forward on GST implementation, the Centre and states today reached an agreement on keeping traders with annual revenue of Rs 20 lakh out of the new national sales tax regime that will subsume all cesses.

While the two sides, at the meeting of the GST Council, agreed on the contentious issues of revenue threshold – below which traders will be exempted from GST, and sharing of administrative powers, the all crucial GST rates will be decided in the meeting to be held on October 17-19.

The newly constituted Council decided to keep the revenue exemption limit at Rs 20 lakh for all states with the exception of north eastern and the hill states where the limit will be Rs 10 lakh, Finance Minister Arun Jaitley said here.

Resolving issues over dual control over small traders, it decided that states will have exclusive control over all dealers up to a revenue threshold of Rs 1.5 crore in a year.

A mechanism would be worked out for traders above Rs 1.5 crore to ensure that a dealer is regulated either by the Central government or the state government and not both.

Broad principles for compensating states for any loss of revenue when the new regime is rolled out from April 1, 2017 were also discussed at the two day meeting of the panel that is headed by Union Finance Minister and includes representatives of all states.

On service tax, it was decided that in absence of expertise with states, the Centre will continue to exercise control over all the 11 lakh service tax registered dealers irrespective of their revenue levels, he said.

Jaitley said the next meeting on September 30 will finalise the draft rules regarding implementation of exemptions.

While 2015-16 will be the base year for calculating revenue compensating to states for any loss of revenue arising from rollout of GST, the final methodology will be worked out in next meetings, he said.

The exemption threshold fixed is lower than Rs 25 lakh that most states had demanded. Some states were pitching for Rs 10 lakh limit to limit their revenue loss.

The same for North-Eastern states is twice of the Rs 5 lakh that was under deliberation till yesterday.

The exemption list has also been cut down to 90 items from the current 300 goods and services. Also, the meeting decided that all cesses will be subsumed in the GST, Jaitley said.

At the end of two-day maiden meeting of the GST Council, Jaitley said it was decided that state authorities will have jurisdiction over assessees with annual turnover of less than Rs 1.5 crore.

For those with turnover of over Rs 1.5 crore, there would be cross examination either by officers from the Centre or states to avoid dual control.

However, the power for assessment of 11 lakh service tax assessees who are currently assessed by the Centre, would remain with it. New assessees added to the list will be divided between the Centre and states.

“All items including cess would be included in GST,” Jaitley said, adding that the Council is working on a compensation law and draft compensation formula.

The base year for calculating compensation would be 2015-16 and the formula for payment of compensation would be deliberated between the state and Central authorities.

The officials will give a presentation with regard to the compensation formula which can be adopted at the next meeting of the Council on September 30.

“All decisions today by the GST Council were taken on the basis of consensus,” Jaitley said.

The general consensus at the meeting, he said, was that the compensation to be paid to states for any loss of revenue because of implementation of the new regime, should be at regular intervals.

“It should be quarterly or bi-monthly,” he said. He said 3-4 alternatives were discussed for compensating states for any loss of revenue by way of implementing GST.

A state can be compensated if the revenue under GST falls short of the average tax earnings in best three years out of past five years.

Secondly, of the five years, two outliers are left out and average is taken. If the revenue under GST is short of this, then states gets compensated.

Thirdly, a base year can be fixed and a particular growth rate decided for all states. If the revenue falls short of that, then the state gets compensated.

Another suggestion was on a fixed rate of revenue growth and give compensation, he said.

“It was decided as far as the exemption threshold is concerned it is fixed at Rs 20 lakh. So those with a turnover of 20 lakh are exempted from GST,” Jaitley said. “For North Eastern states, this exemption limit is is fixed at Rs 10 lakh.”

Decision was also taken on including all cesses in the revenue. “That is how the term revenue will be defined,” he said.

On dual control, the Finance Minister said it was decided that assessees with less than Rs 1.5 crore turnover annually will be assessed by states. “Above 1.5 crore is concerned, there will be some dual control, and cross empowerment of the officers of Centre and state.”

“Which assessee is assessed by whom will be decided on the basis of a formulation mainly the risk assessment by the Centre and state, and which of two authorities has a higher risk assessment will assess it. How the control will change officers will assess it,” he added.

Revenue Secretary Hashmukh Adhia said the first meeting of the GST Council was a success.

Only 5 per cent of the cases will be audited under the GST regime, he said.

West Bengal Finance Minister Amit Mitra said the interest of small traders has been protected by keeping threshold exemption at Rs 20 lakh.

More than half of the 2.65 lakh businesses in West Bengal will not be paying the new indirect tax, set to be implemented from April 1, he said.

“We were able to protect the interest of small traders, small manufacturers and laying out of initial path of GST,” Mitra added.

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