The government on Wednesday took a major step towards making the much-delayed Goods and Services Tax (GST) regime a reality by clearing two significant changes in the GST Constitution Amendment Bill:
The government on Wednesday took a major step towards making the much-delayed Goods and Services Tax (GST) regime a reality by clearing two significant changes in the GST Constitution Amendment Bill: it dropped the one per cent manufacturing tax and decided to provide a guarantee to compensate states for any revenue loss in the first five years of the rollout of the proposed indirect tax regime, which was also a demand of the Congress.
By accepting the two major changes, the NDA government has in a way given weightage to the main Opposition Congress party’s views. The changes, approved during a meeting of the Union Cabinet chaired by Prime Minister Narendra Modi, have now virtually opened the door to the passage of the controversial bill in the Rajya Sabha, probably by next week.
The Congress’ other demand — to cap the GST rate at 18 per cent — did not come up for discussion, sources aware of the developments said, as it was not part of the bill cleared by the Lok Sabha in May 2015. However, it was unanimously agreed at the July 26 meeting of the empowered committee of state finance ministers that the rate would be on the lower side. Sources added that a consensus on a nominal rate could be reached later since the bill would anyway be discussed in the RS before being cleared by the Upper House.
There is talk of mentioning the GST rate in one of the two supporting pieces of legislation that need to be passed after the Constitution is amended, a move that may pacify the Congress.
The Cabinet also decided to include in the Constitution Amendment Bill a clause that any dispute between the states and the Centre will be adjudicated by the GST Council, which will have representation from the Centre and the states. This is another Congress demand that the government has accepted.
While the NDA government has made the aforementioned changes and displayed an accommodating approach towards the Congress as well as the states, it has in a way snubbed the AIADMK since Tamil Nadu was apparently keen on retaining the one per cent manufacturing tax.
With the states on board and the Cabinet approving the amendments, the government is hopeful that the long-pending GST Bill will find passage in the ongoing Monsoon Session of Parliament ending August 12.
The changes approved by the Cabinet are to the Constitution Amendment Bill approved by the Lok Sabha in May 2015. Once the Rajya Sabha approves the legislation, the amended bill will have to go back to the Lok Sabha for approval.
The amendments were taken up by the Cabinet after Union finance minister Arun Jaitley assured state finance ministers that the mechanism to compensate states would be included in the bill.
The bill in its present form says the Centre will pay 100 per cent compensation to states for the first three years, then 75 per cent and 50 per cent for the next two years. However, the Select Committee of the Rajya Sabha had in its report recommended 100 per cent compensation for probable loss of revenue for five years. As per the amendments, the Centre will now constitutionally guarantee states any loss of revenue caused by the GST subsuming all indirect taxes, including VAT, in the first five years of introduction.
By doing away with the one per cent inter-state tax over and above the GST rate, the government has met one of the three key demands over which the Opposition Congress has been blocking the bill in the Upper House. The other two demands — to include the GST rate in the Constitution and to set up a Supreme Court judge-headed dispute resolution body — have not been accepted. It remains to be seen if this will be enough to persuade the Congress to support the legislation.
