Jammu and Kashmir (J&K) is poised to be the first state to bring petrol, electricity, liquor and real estate under the state goods and services tax (GST).
A formal decision is likely to be part of the state’s budget for 2017-18, scheduled for presentation in the first week of January.
Not only will the state’s decision revive the debate over extending the purview of GST to all sectors, including petroleum, alcohol and real estate, it may also serve as a template for other states.
Since these items are not part of the GST framework, the state will not have to share the revenues even while it avails of the efficiency associated with this piece of indirect tax reform.
A J&K government official said on condition of anonymity that a high-level panel has been set up to prescribe the modalities.
Once implemented, businesses will be able to benefit from tax rebates which, at present, are not available to them. For example, businesses can offset part of their final tax liability against the state GST (SGST) paid on the electricity consumed or on purchase of real estate for business. It will offer a competitive edge for businesses operating from J&K, incentivizing new businesses in the state.
Experts said the move is to replace value-added tax (VAT) on fuel, state excise duty on liquor, state-level duty on electricity and stamp duty on land with SGST. “If SGST is extended to supplies of these items, it will be beneficial for the industry,” said Prashant Deshpande, partner, Deloitte Haskins & Sells Llp.
While inclusion of these items in SGST will be beneficial, experts also pointed out that it has to be achieved without making the GST structure more complex.
“States should reach a consensus on bringing into GST’s ambit the items left out earlier so that central GST and SGST on goods and services remain equal,” said Bipin Sapra, tax partner at consulting firm EY.
India follows a dual GST structure, where the tax rate is divided equally and shared by Union and state governments. If SGST and CGST rates are unequal, it could pose challenges in settling taxes on inter-state trade. The J&K government’s panel will look into all implementation issues.
Select petroleum products, liquor, real estate and electricity were kept out of GST at the final stage of consensus-building during the early days of the Narendra Modi government as part of a ‘give and take’ deal to win the support of states for the historic tax reform.
Agreeing to keep these items out of GST and full compensation of any revenue loss arising from GST rollout from the projected growth rate for five years had helped finance minister Arun Jaitley generate consensus.
Jaitley has already promised further simplification of GST by the GST Council in due course. Delivering a lecture at Harvard University on Thursday, he said there was a strong case to bring real estate under GST as the one sector where maximum amount of tax evasion takes place, PTI reported from Washington. The matter will be discussed in the next meeting of the GST Council, to be held on 9 November.