Arun Jaitley, state finance ministers to brainstorm over GST, Union budget today

New Delhi: State finance ministers and their counterpart in the central government Arun Jaitley will hold wide-ranging talks on Thursday about state finances and indirect taxation at the 25th meeting of the Goods and Services Tax (GST) Council and a pre-budget consultation in the national capital.

State finance ministers will present their wish list for budget 2018-19 to Jaitley and senior finance ministry officials. This will be the first Union budget after the implemention of GST.

With the GST Council taking all decisions with respect to this new indirect tax regime and states getting assured compensation from the centre for revenue losses under GST (calculated assuming 14% growth in tax revenues annually), states are comfortably placed as far as indirect tax revenues are concerned.

However, they are expected to demand a relaxation in the deficit targets under the fiscal responsibility and budget management act as they look to roll out the recommendations of the 7th Pay Commission to state government employees.

The overall financial health of many states suffered due to implementation of UDAY, the bail-out package for state power distribution companies, which raised their debt levels, although it is not counted in state fiscal deficit. States are also expected to demand funds for specific infrastructure projects, new educational institutions and for supporting locally relevant industries.

The meeting assumes significance as the last full budget of the National Democratic Alliance (NDA) government is expected to address rural distress, job creation and ways to accelerate economic growth after the blip seen earlier this year in the wake of structural reforms.

The pre-budget meeting will be followed by the meeting of the GST Council wherein steps needed to make the invoice matching process simpler will be discussed. This could mean combining some of the existing tax return forms under GST.

Changes required in the GST laws will also be discussed. The law committee constituted by the council has suggested amending laws to allow large service tax providers to obtain a single registration.

Invoice matching is crucial as tax credits on purchase of goods will be available to businesses only if the purchase details filed in GSTR 2 by the buyer matches details of outward supplies filed by the seller in GSTR 1. Since these details will be automatically filled into the tax return form of the buyer, the entire supply chain will be networked.

Invoice matching along with e-way bill and reverse charge mechanism—large entities paying tax on behalf of the small players they source products and services from—will be crucial to check tax evasion under GST. At present, these features are not in force as policy makers wanted to ease compliance burden in initial months.

An e-way bill will have to be generated for all movement of goods—within or outside a state—amounting to more than Rs50,000 by prior online registration of the consignment. The supplier and the transporter can upload the details about the shipment and get a unique e-way bill number.

Congress-ruled states like Punjab will seek inclusion of petroleum and real estate under GST, besides advising caution against bringing frequent changes to GST rules and rates. They are also expected to advice caution against introducing e-way bills without adequate preparations in the back end.

In the meantime, businesses have been seeking fresh relief on tax rates. E-commerce firms offering housekeeping services are liable to pay 18% GST on reverse charge mechanism even if the service providers’ turnover is less than Rs20 lakh. They are seeking either a lower tax rate of 5% without tax credits or parity with other e-commerce service providers who are not liable to pay tax if the service suppliers’ turnover is below the Rs20 lakh threshold.

Abhiraj Singh Bhal, co-founder and director of UrbanClap, an online service provider, said firms such as his generally earn a very small margin on housekeeping services provided through their platforms and that the 18% tax would absorb the margin of these companies.