GST meet: States demand tax on high sea sales, higher compensation

By: ENS Economic Bureau | New Delhi |January 4, 2017

The Goods and Services Tax (GST) Council on the first day of its eighth meeting kick started discussion on the provisions of the Integrated GST (IGST) bill, with the states and the Center locking horns on the issue of tax jurisdiction over high sea sales in offshore regions of coastal states. The talks remained inconclusive and may resume on Wednesday along with the other contentious issue of cross empowerment pertaining to division of control over tax assesses under the proposed indirect tax regime.

With the states and the Center in a deadlock over the important provisions of IGST bill, finance ministers of many states said that the April 1 deadline for GST rollout is likely to be missed.

“We couldn’t reach a consensus on a very important issue that relates to defining of a state. This is 12 nautical miles from the state can states charge GST from them or not? Right now, Gujarat, Karnataka, Kerala, Odisha, Maharashtra, West Bengal, many states are now charging VAT or sales tax within 12 nautical miles. For example, when a ship is loaded with oil or products, the tax on that is charged by the states,” West Bengal finance minister Amit Mitra said.

“Some states earn as much as Rs 600 crore and Gujarat has Rs 1,200 crore from this source. All the coastal states combined, irrespective of parties, in saying that we must have 12 nautical miles within the state jurisdiction,” he said. The issue has been referred to the law ministry by the Council’s chairman, finance minister Arun Jaitley, Mitra added.

Kerala finance minister Thomas Isaac said: “The current practice is states collect sales tax, sale in high seas and so on. But in the draft law, the Union was to define the territorial waters to a distance of 12 nautical miles. Now that was not acceptable.”

On the likely timeline of GST implementation, finance ministers of most states said that the April 1 deadline is likely to be missed. BJP-ruled Gujarat’s FM Nitin Patel said GST may become a reality only from September.

Issac said even if the supporting legislation’s of GST get passed in Budget, the indirect tax regime cannot be rolled out before June. “It (GST) can happen anytime, say, June, July, August..definitely not April. If laws can be passed in the Budget session, then definitely June-July,” he said.

Delhi deputy Chief Minister Manish Sisodia said, “I don’t think it can happen in April, maybe one or two months delay.”

States also demanded higher compensation citing the adverse impact on their revenue after the government scrapped high-value notes. The compensation bill is likely to be redrafted to enable raising higher funds than the initially estimated amount of Rs 55,000 crore for compensation since increasing the list of demerit goods for levying cess is not feasible, states’ FMs said.

“Demerit category is not expandable. The demerit goods are already covered under the cess. Not many items that can be classified as sin goods,” Rajasthan’s urban development minister Rajpal Singh Shekhawat said.

Pointing to the contraction in West Bengal’s tax revenue by 2 per cent in November 2016 as against a growth of 11 per cent in the same period last year, Mitra said that states would need higher compensation.

Mitra said that the Center should stick to its constitutional commitment of giving 100 per cent compensation to states for any loss suffered after the implementation of GST. He said West Bengal was committed to GST implementation but the “demonetisation tsunami” derailed it.

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