Welcoming the implementation of Goods and Services Tax in the country, Chief Minister Kalikho Pul on Tuesday called for the need for exemption provision and flexibility within the GST Laws, especially for state like Arunachal, which could not be kept in the same category as the bigger and more developed states.
Attending the Empowered Committee meeting of State Finance Ministers on GST here, Pul who also holds finance portfolio said that such exemptions are must to empower those states lagging behind in development to assess and create state-specific tariffs and exemptions that will address the issues of the developmental gap.
The Empowered Committee of Finance Ministers was presided over by its Chairman and West Bengal Finance Minister Amit Mitra and attended by Finance Ministers from 22 states.
Informing on various tax exemption structures for Arunachal, the Chief Minister said that 99% VAT exemption, which has been given as an industrial incentive is must to promote and protect the state’s emerging manufacturing sector.
“It is important to understand that Arunachal Pradesh is a net consuming state and is in its early phase of industrial and economic growth, and therefore requires such protection and promotion,” he stressed.
Pul also expressed concern over entry tax in Arunachal to be subsumed by the present form of GST law, which could mean a huge revenue loss to the state government.
“In Arunachal, entry tax is not an additional tax; rather input tax credit (ITC) is given to the dealer to the extent of entry tax paid while filing VAT returns,” said the Chief Minister. “It is a kind of advance VAT paid by every dealer and 80% of revenue collection in our State comes from entry tax.”
Further he requested that the existing entry tax collection centres at border check gates on the Assam-Arunachal border be allowed to be converted as focal points for collection of advance GST as well as a centre for GST administration.
In view of poor service sector in Arunachal with very less contribution to the tax base, the Chief Minister emphasised that Revenue Neutral Rates (RNR) as proposed currently, will adversely affect the revenue generation of the state and it is assumed that the State will lose income.
“In order to reinforce, or at least maintain the quantum of revenue generated for Arunachal, we request that Government of India extend the tenure of revenue compensation to 10 years, considering that it is a Special Category State,” he urged.
The Chief Minister suggested on creating a mechanism through which the end-use destination is reflected at the time of purchase and the subsequent tax that accrues from this, is made available to the Destination State.
“This could be through a system where the invoice is raised against the destination of use, where the taxes will be paid. Or if it is paid at the time of purchase, the law needs to provision that the State of final consumption of goods and services is remitted the due share of the tax,” Pul suggested.
Highlighting the IT connectivity and power issues in the state, the Chief Minister informed that the state is facing great hindrance while preparing for IT infrastructure to implement the GST as the state does not have multiple internet service providers and it has to depend on BSNL, whose services are also inconsistent.
Pul called for centre’s intervention in creating a robust IT infrastructure in Arunachal Pradesh to develop capacity for full compliance of the GST. He suggested an alternate mechanism through the Goods and Service Tax Network (GSTN) that could be asked to take care of the last mile connectivity in the state.
In view of the poor IT infrastructure and connectivity, the Chief Minister said that filing of e-returns will be a difficult provision to implement on the ground.
“If GST has to be implemented from the next financial year onwards, a transition from paper-based tax registration system to an electronic form requires phasing, over certain duration with provisions for this in the Model GST law,” he suggested.
Calling for exemption in provision of PAN-based registration, the Chief Minister said that the state of Arunachal Pradesh is predominantly a tribal state whose residents are exempted from income tax and by extension, the provision of Permanent Account Number (PAN) does not apply to the State.
Welcoming the GST, Pul said that the law indeed has potential to lead to the economic integration of India, by seeking to create a uniform tax levied on goods and services across the country to replace the complicated, often overlapping taxes levied by the Centre and the State separately today.
Also by provisioning that both the centre and the state will have powers to legislate and administer respective taxes, it seeks to equally empower both, he added.
“It is from that perspective that I express how important this meeting of the empowered committee, to work collectively in creating a law that is effective, comprehensive and having space for states to create responses to local dynamics- like with Arunachal Pradesh,” said Pul.
Also attending the meeting, the Union Finance Minister Arun Jaitley observed that there is “complete” consensus on implementation on GST and hoped that it would be approved in monsoon session.