By Prince Wani
During the midnight of 30th June and 1st July 2017, the Government of India finally implemented the much talked and much debated tax reform in the form of the Goods and Services Tax(GST). The GST has been implemented in all the States and Union Territories of India except Jammu and Kashmir. In order to implement the GST in the State of Jammu and Kashmir , the Government needs to either extend the Government of India’s Constitutional Amendment 101 or form its own law in terms of section 5 of Jammu and Kashmir Constitution. The amendment cannot take root on its own in view of the peculiar constitutional position as in case of other states. As this constitutional amendment has far reaching affects for the State of Jammu and Kashmir in terms of its fiscal autonomy to levy taxes both in case of Goods as well as services but also posing great threat to the economy if not delicately taken care of. It is pertinent to mention that Jammu and Kashmir has been an only State to levy taxes on account of both Goods and Services while as all other states could levy taxes only in respect of Goods. At present Government of Jammu and Kashmir is collecting taxes both on account of State VAT, Central Sales Tax and Service Tax.
The Act which has far reaching consequences for the polity as well as economy of the State should have been taken up for discussion too early at least among the intelligentsia if not between the general public. The model GST law has been in air since 2009 and a better way out could have been derived in such a long period. It is unfortunate that the State was kept under ignorance even after it was clear that the Government is going to implement it by 1st July 2017. It is only few days back that the matter was put into legislative domain though still it is out of public domain. One can either suspect the insincerity of the mainstream parties or at least serious negligence on this account.
In order to find out the way forward , one has to see broadly what we are losing if we adapt the said Amendment / Act as it is. Succinctly, it appears clearly that the State will lose fiscal autonomy completely to GST Council. This means State Government will have no powers to levy new taxes, give exemptions and raise or reduce the tax rates. It also means that the service tax which is presently under the State Government’s domain will be taxed concurrently as in case of Goods. As we know at present due to under developed industrial sector, the manufacturing industry shall loose the tax holiday provided to them by the State Government. The main stay of our economy like handicrafts, horticulture and Tourism which includes Hotel industry shall fall in the GST ambit. One can clearly see in the recent tax rate notifications that nuts, almonds, hotels, industries all have been bracketed under different tax rates. Not only this tax administration which is at present dealt exclusively by the State Government officials shall also be dealt concurrently by State and Central Government officials. Tax official functions like Registration, Cancellation of Registration, Assessment, Audit, Appeal, collection of taxes etc were all exclusively dealt by the State Officials whether in case of VAT, CST or Service Tax shall fall into concurrent domain. In many cases the Central Government Officials will have a higher say. Take, for instance, the registration it is said that both Central Government as well as State Governments will be able to do it. If any one of them gives registration or cancels it, it means it may be treated registered or cancelled. There is every apprehension keeping in view the past experience that the registrations will be given to non state subjects which will badly hurt the local industry.
What is the way out? As, at present being out of it without any alternate piece of legislation means people have to pay tax doubly. The outside traders will deduct tax as per new rates from the local traders, in absence of legislation here, the input tax credit shall not be available to the local traders. The local traders shall charge the tax paid by them outside and the additional tax under VAT shall also be added.
It is clear from the recent rumblings on the subject that most of the experts whether people from mainstream National Conference, Congress, Awami Itihad Party, Communists or both the Hurriyats, civil society members, trading fraternity no one is of the opinion that the Government of India’s, constitutional amendment 101 shall be extended to the State. The only way out remains that we frame our own piece of law as we have done in several other cases like 43rd and 44th constitutional amendment in respect of Panchayats and Municipal Bodies, School Education Act and many more. There are two ways to go on this, one is on the lines of the report given by the committee in 2013 headed by the then Advocate General comprising of two successive Commissioners of Tax and Law Secretary that all the tax rates shall be kept same but powers of legislation and administration shall be kept with the State. This means that fiscal autonomy of the State shall remain intact but by name because when we say we will be keeping tax rates same as will be prescribed by the GST council it means we are leaving our economy particularly handicrafts, horticulture and tourism at peril. As we know it is beyond imagination that having a single vote out of 33 votes we could be able to convince anyone in GST council.
The second way which seems to be better and dignified one is that State of Jammu and Kashmir shall be treated as a special category state if not a foreign destination or SEZ as it is in view of its historical and constitutional position. The state shall continue to impose taxes in respect of Goods and Services, collect both central and State taxes and also administer the tax administration. There can however be a middle path in respect of all Goods and Services excepting vital economic sectors like handicrafts, horticulture and industries we shall continue legislating taxes as advised by the GST council. The vital economic sectors like horticulture, handicrafts and Industry shall continue to be taxed independently as per our needs. The area of collecting taxes for both state and centre and administering the tax regime shall continue to lie with the State. The input tax credit flow in and out of the state in respect of Goods and Services for which State Government will have different tax regime shall be accordingly adjusted with the Government of India. The rest of the provisions which are taxpayer friendly in the GST Act shall be incorporated. Accordingly the IT module can be tailor made and linked with the main GSTN module for smooth flow of information which is not such a big deal only after the broad contours are worked into finer details.
The State Government, at present, should in way of ordinance provide some interim law / arrangement on the subject so that presently the people of Jammu and Kashmir shall not have to bear the burden of extra taxes. The immediate convening of legislature to pass some law shall be in hot haste if apprehensions of the people in this regard are not taken care of. The Government should within one or two months after threadbare deliberations come up with some law within the above noted broader contours after consultation with the all sections of the society particularly the local finance and tax experts so that this opportunity is not wasted and turned into golden loss. The similarly situated positions like in respect Canada GST shall be studied minutely. It is true after the law is detailed in it will have to be negotiated through with the Central Government which can be tough process. However, keeping in view the negotiating skills of the present Finance Minister this should not be a difficult one. This shall not only pave way for keeping intact the fiscal autonomy of the State and its relations with Centre as well as given people relief that they are not loosing anything on this pretext.
—The author is a tax practitioner. He can be reached at: email@example.com