The PDP-BJP coalition government in the state is caught in a piquant situation on the implementation of goods and services tax (GST) after Opposition parties accused it of trying to end the special status of the state.

The PDP-BJP coalition government in the state is caught in a piquant situation on the implementation of goods and services tax (GST) after Opposition parties accused it of trying to end the special status of the state. The Mehbooba Mufti-led government is in a quandary also because if GST is not implemented local traders wouldn’t get any concession while exporting goods from outside the state and several commodities (in Jammu and Kashmir) will be priced higher than the rest of the country.

The Jammu and Kashmir government has called an all-party meeting on 13 June to find a solution out of this unique fix as well as resolve concerns of the Opposition parties. Incidentally, a delegation of opposition parties led by National Conference (NC) leader and former chief minister Omar Abdullah had met Governor NN Vohra to raise their concerns about how the new tax regime would erode state’s special status. A special session of the Assembly has also been convened on 17 June to discuss the GST law.

Though the Jammu and Kashmir government recently approved a draft GST bill, and in a Cabinet meeting Chief Minister Mehbooba Mufti maintained that GST would make prices of essential commodities cheaper and help the state generate additional tax revenue, GST's impact on the state's special status remain a concern. Jammu and Kashmir's finance minister Haseeb Drabu had earlier held that the GST Council will have over-riding powers than the state Assembly and this would be a matter of concern for the state of Jammu and Kashmir which has a special status and also its own Constitution. During a recent GST council meeting in Srinagar, Drabu, however, held that the new tax will help the common man and make the commodities and services cheaper.

Minister of state for finance Ajay Nanda, said that "the mode of implementation of the GST in the state will be worked out". "We are holding an all-party meeting to see as to how the law can be implemented," he said.

Jammu and Kashmir tax laws vs GST

According to an official at the state's commercial tax department, implementation of GST will make several state laws including the General Sales Tax Act, which taxes services, irrelevant. Some 30 services have been notified by the government from time to time, which are being taxed under the state act, the official said.

The task of implementing GST has also become difficult because of the business community, which fears that the new GST regime will weaken the special status of the state. President of the Kashmir Chamber of Commerce and Industries (KCCI), Mushtaq Ahmad Wani, said, “We are strongly against any dilution of the stand on GST by the state government and would resist it forcefully."

The Jammu and Kashmir state imposes a number of other taxes on its own, for example, petroleum products are taxed as per the Jammu and Kashmir Motor Spirit and Diesel Tax Act, 1948. The tax law provides for levy of charges on the retail sale of motor spirit and diesel oil and has been promulgated as per the powers reserved to the state under Section 5 of the Jammu and Kashmir Constitution. Similarly, the Jammu and Kashmir state has its own Value Added Tax (VAT) Act 2005, which was enacted by the state legislature. As per the VAT Act, "every dealer whose turnover of sales or purchases exceeded the taxable limit shall be liable to pay tax on his sales or purchases, as the case may be". Besides that, in Jammu and Kashmir, a tax is also imposed on "entry of scheduled goods into the state" from outside as per Entry Tax on Goods Act, 2000, which was enacted by the state legislature.

GST is the way ahead

According to officials, with the new GST regime all the indirect taxes will go, and only three taxes — the Central Goods and Services Tax (CGST), Integrated Goods and Services (IGST) and State Goods and Services Tax (SGST) — would be implemented in the state.

Without GST, trade with rest of India will become difficult for Jammu and Kashmir traders and businessmen. “In case the state opts out from the GST regime the traders and businessmen would not be able to conduct business with rest of India and can’t get the benefit of input tax credit," a senior government official said, adding, “GST is a self-assessment taxation model in which the interface with the officers is being done away with and the tax is paid online."

Union finance minister Arun Jaitley has earlier argued that the different tax brackets of the GST have been worked out to ensure that the commodities which are of mass consumption are taxed in the lower bracket than the luxury goods. In a press conference in Srinagar, which was held after the GST council meeting, Jaitley had said that under the GST, "actual incidence of tax on customers will go down" and those "who are against GST in Jammu and Kashmir lack understanding". He also said that in case GST was not implemented in the state customers in the state would have to pay double tax, first on inputs and then on the final product. "If GST is not implemented the people will not be able to get the benefit of input credit," he had said.

The state government has, however, also maintained that the CGST is already applicable in the state in the form of Central Excise Tax on the manufacturing of goods, which would now be subsumed into the GST. Similarly, officials said that the J&K government will counter the opposition on the plea that the central sales tax act is also applicable in the state and would now replace the IGST.