The stage is set for the roll-out of a uniform goods and services tax (GST) regime in the country, with the Congress deciding to vote for the long-pending Constitution Amendment Bill in the Rajya Sabha on Wednesday, despite some disquiet among a section of the party’s senior leadership over the absence of a cap on the tax.
The government circulated among the Rajya Sabha members the official amendments to the GST Bill dropping the one per cent additional tax and including a provision for compensating the States for revenue loss arising from the implementation of GST for five years.
Congress MPs on Tuesday wanted to know from their party colleagues who had negotiated with the government why they had eventually agreed to forego the demand for a cap of 18 per cent.
They also wanted to know what explanation the party would give to the people on delaying the passage of the Bill if this point was to be conceded eventually.
The former Finance Minister, P. Chidambaram, and party’s Deputy Leader in the Rajya Sabha Anand Sharma, who were the lead negotiators for the Congress, explained that the government had promised that the GST Council — in consultation with the States — would work out a set of bands to ensure a revenue neutral tax.
The amendments were submitted to the Secretariat of the House two days ago and these were circulated among the members.
“Parliament shall, by law, provide for compensation to states for any loss of revenues, for a period which may extend to five years,” PRS Legislative said in a note. “This would be based on the recommendations of the GST Council. This implies that (i) Parliament must provide compensation; and (ii) compensation cannot be provided for more than five years, but allows Parliament to decide a shorter time period.”
Proposed amendments to the 2014 Bill in the Lok Sabha that have been incorporated in the 2016 Bill
Source: PRS Legislative Research
The removal of the one per cent additional tax was an amendment welcomed by industry and parliamentary opposition alike. “The point of GST is to create a common market in the country and remove supply chain distortions arising from different tax rates in different States,” Pratik Jain, Partner and leader – Indirect Tax, at PwC India told The Hindu.
“The 1 per cent tax would have continued the distortions. Removing it addresses industry concerns and, of course, the Congress’ demand.” The amendments included a dispute resolution mechanism to be established by the GST Council. The disputes include those between the Centre and one or more States, the Centre and States versus one or more States, and a State versus another State.
Other changes include more technical modifications such as defining the term Integrated Goods and Services Tax (IGST) as ‘goods and services tax levied on supplies in the course of inter-state trade or commerce.’ The amendment also clarifies that the States’ share of the IGST shall not form a part of the Consolidated Fund of India. The final amendment states that the CGST and the Centre’s share of IGST will be distributed between the Centre and States.
Last week, Finance Minister Arun Jaitley met the Empowered Panel of State Finance Ministers, where a broad consensus on various issues was reached, paving the way for a smoother passage of the Bill. Congress vice-president Rahul Gandhi, who moderated the discussion in the party stressed the need for coming up with a credible political explanation for the stand on the Bill. Mr. Chidambaram and Mr. Sharma have therefore been asked to prepare a note, party sources said, to provide talking points for Congress members.