Nearly seven decades after Independence and a decade after it was first proposed in a Budget speech under the previous government, a constitutional amendment bill to enable the Goods and Services Tax,
Nearly seven decades after Independence and a decade after it was first proposed in a Budget speech under the previous government, a constitutional amendment bill to enable the Goods and Services Tax, one of the most far-reaching reforms in India’s indirect tax structure, was finally passed in the Upper House of Parliament, and was set to soon become a reality.
This was also a major victory for the Narendra Modi government, particularly finance minister Arun Jaitley.
The Rajya Sabha passed the Constitution (122nd Amendment) Bill 2014 on Wednesday evening, paving the way for subsequent legislation on Central GST and inter-state GST, that will now be taken up.
The bill on GST, referred to as the “most far-reaching tax reform since Independence”, was cleared after the finance minister assured the Rajya Sabha that the government was “not averse” to a debate on future laws relating to Central and inter-state GST in the Upper House during the Winter Session. Mr Jaitley, however, was evasive when the Congress demanded a commitment that GST-related bills would be financial bills and not money bills, as they ought to be discussed in both Houses. (The Rajya Sabha does not have the power to block a money bill.) Mr Jaitley made it clear such an assurance could not be given at this juncture as the content of the bill had not yet been drafted. At the same time, he pledged the government would “adhere to the Constitution” and bills related to GST “will be discussed in the Upper House”.
The revised GST Bill will now go back to the Lok Sabha to incorporate the amendments approved by the Rajya Sabha.
The constitutional amendment will also have to be ratified by the legislatures of at least half of India’s 29 states before it can come into effect.
After this, the CGST and IGST bills, which will be drafted by the empowered committee of state finance ministers, will be introduced in Parliament during the Winter Session.
Prime Minister Narendra Modi hailed the passage of the Constitution Amendment Bill, describing it as a “historic occasion”, and thanked all parties.
The bill was approved by the Upper House with 203 votes in favour and none against after a seven-hour debate in which rare bonhomie was seen among both the ruling and Opposition parties.
Six official amendments, including scrapping of the one per cent additional tax, moved by the government were approved with cent per cent votes. The bill was supported by the Congress and most other Opposition parties like the SP, JD(U) and TMC. Only the AIADMK staged a walkout in protest.
In his reply, the finance minister assured the House that the government would keep the GST rate “as low as possible”. He did not make any commitment about any specific rate despite the Opposition benches pressing for it. “We will try and keep the rate as low as possible, certainly much lower than what the present situation is. As compliance increases, the possibility of that rate coming down further will be there,” he said.
Mr Jaitley said the tax rate would be decided by the GST Council, comprising the Union finance minister and the representatives of all 29 states. He told the House that “we must trust the sense of responsibility of the states”.
Mr Jaitley said that at present 80 per cent of goods attract 12.5 per cent Central excise duty while at the state level 55 per cent of items face 14.5 per cent VAT or sales tax. The weighted average of the two in 65 per cent of items comes to 27 per cent. Adding cess, octroi and entry tax takes the figure to 30 per cent.
The finance minister said GST “will make the system more efficient” and pointed out that “tax avoidance will become more difficult”. Mr Jaitley told the House that “there will be no cascading effect of tax on tax”. He said “there are certain items which will either attract a lower rate of tax or no tax at all”. The finance minister also ruled out any adverse impact of GST on inflation.
The journey to achieve the “biggest” tax reform was a tricky one, with both the Prime Minister and Mr Jaitley working together to virtually isolate the Congress initially by winning over a majority of other Opposition parties, then changing tack to win over the Congress by yielding to its demands. Conceding the Congress’ plea, the Modi government removed the provision for a one per cent inter-state tax in GST.
