Why is J&K State not accepting GST? What if J&K does not adopt GST

The Much talked about and ambitious bill by NDA Government, also touted as bill that would ensure reconciliation of inputs and outputs and thus eliminate parallel black market economy is set to get implement from next fiscal year.

As at the time, 16 states, including some of the non-BJP alliance states, such as Bihar, have already given their assent to the GST bill. Notably Bihar has given its assent as it understands that it s bound to gain revenue as most of the consumption in the state is coming as “imports” from other states and it is going to get revenue from such sales

However J&K till date has not gven its assent as so much that Jammu & Kashmir finance minister Haseeb Drabu has categorically announced that GST bill as may be applicable in J&K bill would have to undergo some further amendments.

Centre to compensate revenue loss for initial years due to GST implementation- Why is J&K Resisting?

J&K is being ruled by alliance with BJP as its partner and as such should not be facing any problem. However it is well known that the alliance in J&K is between very unnatural partners and only for political gains.

The ruling PDP party, for its long term survival, would like to be seen as “anti BJP” party and has to resist any decision by BJP before it is exploited by its opposition leaders. Opposing GST will snatch any gains that opposition parties especially in Muslim majority area of Kashmir may get by exploiting the same. This is despite the fact Centre has assured to compensate any losses for revenue losses due to GST implementation.

As India has federal structure, GST has to be implemented concurrently by the Central and State Government as CGST and the SGST respectively and without tacit support by state government, Central Government may find it difficult to implement GST in J&K.

Special Status of J&K also creating Problems in implementation of GST- Due to special status of J&K, the powers of the Parliament to make laws for the state of J&K are limited. Central Government cannot enforce any law on the State of Jammu and Kashmir without the approval or concurrence of the Government of the State except in the case of defense, external affairs and communications.

Even levy of Central Excise duty and Central Sales Tax was also made applicable to the State through the amending Order of 1958. Provisions of levy of service tax are not applicable to the State of Jammu & Kashmir. The state enacted its own version of the Act as ‘The Jammu and Kashmir General Sales Tax Act, 1962′ through which it has levied tax on certain services.

President empowered to Modify operations of Article 370 but requires recommendations of Constituent Assembly of the State. – Now Since Constituent Assembly of the State does not itself exist anymore, the said power of the President does not exist in reality.

Thus practically without the consent of the ruling Government, Goods and Service Tax cannot be forcibly made applicable to the state as the proposed application of GST can be made applicable to State of J&K only if the same is ratified by State of J&K.

Why is J&K resisting GST Tax?- Government of Jammu and Kashmir apprehends that the proposed implementation of Goods and Services Tax (GST) would erode the State’s taxation autonomy.

Jammu and Kashmir parts of J&K are split on its implementation-While the Chamber of Commerce and Industry (CCI) Jammu is vouching for its implementation, the business community in Kashmir is opposing the same.

Given the apprehension that GST would result in end to state’s autonomy and that this would be exploited endlessly by opposition parties, ruling PDP is too reluctant to adopt GST. J&K Being largely a consuming state, it is bound to gain in revenue and all its fears are unfounded. CGST has large component of existing Excise Duty which is going to be merged in it, would form part of the kitty being distributed to the states, and how can J&K be loser in revenue? Moreover post implementation of GST more number of services than being cover at present would come under taxation ambit, increasing the state revenue further.

Refusal by J&K to adopt gst is more out of political compulsions rather than economic logic

What is J&K Does not adopt GST- It appears very clear that Centre cannot enforce GST on J&K unless state Government agrees to this. Only one state, J&K being left out of GST would create chaos in the administration of GST in respect of inter-state sales.

If GST not implemented, in longer run, traders would face heat- prices would increase- Out of state smuggling would also increase. In this case, Goods being sold to J&K would not be abatable for GST and it would become costlier for the retailers in the state. Traders would like to have their own godown outside the state and may resort to smuggle goods clandestinely into the state to avoid the burden of GST which they are not able to abatement of.

On the other hand, goods being sold from J&K to other states, would not be liable to any tax as Excise duty or CST. The buyer would not be able to get credit for any taxes that are paid in state of J&K thus severely affecting the interstate trade, which in any case would not be in interest of the people of state..

As foreseen- Ultimately, the state ruling party PDP would have to make some compromise with its ruling alliance partner to have some amends for J&K and get some brownie points to sell so that other parties are not able to reap any political gains

This is also indicated by Jammu & Kashmir finance minister Haseeb Drabu, who said that the state government will come out with a separate proposal on how to participate in the GST framework without compromising its constitutional position on taxing services.

Drabu also expressed his concerns that once the GST takes off, the GST Council would become more powerful than state legislatures, which is a matter of concern for the J&K government and needs to be sorted out, given the state’s special status.