The Cabinet on Wednesday approved the amendments to the GST Constitutional Amendment Bill as vetted by a Rajya Sabha select committee, even as there was no definite signs of an end to the parliamentary logjam over the contours of the proposed tax. While the Congress indicated its willingness to support the Bill if its demands were met, sources in the government said there were slim chances of its suggestions being accepted as these were of a substantive nature like capping the GST rate at 18% in the Constitution itself.
The Cabinet also approved two Budget proposals — one to allow all categories of foreign investment in alternative investment funds, a category of pooled-in investment vehicles for real estate, private equity and hedge funds, and the setting up of a National Investment and Infrastructure Fund that can be leveraged by infrastructure companies.
The finance ministry, which promised to keep the revenue-neutral GST rate way below the 27% discussed earlier, will take a view on it by the end of August once its chief economic adviser Arvind Subramanian gives his report on the subject, sources said.
Former Union minister and chairman of the parliamentary standing committee on finance, the Congress’ M Veerappa Moily, indicated that if the government “looked into” his party’s proposals in the dissent note, it could support the GST Bill. “We are supporting it (GST) actually, with the modifications suggested by us,” he said on the sidelines of a conference here.
The Bill needs the support of 164 members to get two-thirds majority in the 245-strong House, where BJP is in the minority (63 with allies). The Congress has 68 seats and the AIADMK 11, making the Bill’s passage a close call.
As per Wednesday’s Cabinet decision, the Constitution (122nd Amendment) Bill on Goods and Services Tax (GST) passed in the Lok Sabha in May and pending in the Rajya Sabha would be amended to incorporate a few changes that would make the tax reform more acceptable to states and to industry. The changes include providing for full five-year compensation to states for any revenue loss from GST adoption and exempting stock transfers within group companies from the 1% origin-based tax on interstate trade so that the GST’s chief trait of negating cascading of taxes is not neutralised.
Although the indirect tax reform was first mooted by the Congress, the controversial 1% origin-based tax proposal was not part of the version of the Bill that it tabled in Parliament in 2011. The Modi government incorporated it in the Bill tabled last year to get states on board as it is crucial to get 15 states to ratify the Constitution amendments.
The Rajya Sabha’s select panel suggested that the tax base has to be broad and the rate moderate so that the new tax regime does not become inflationary. It also quoted discussions with stakeholders saying that the standard rate applicable on most of the taxable supply of goods and services should not go beyond 20% and the same for a few select items called the merit rate not beyond 14%. The GST rate would eventually be decided by the GST Council comprising Union and state finance ministers.
The House panel did not accept any change in the voting pattern of the GST Council, a decision-making body to be set up as demanded by the Congress and AIADMK. Also, calls from parties for extra taxation rights for states on tobacco as well as the Congress’ demand for a dispute-settlement body were not accepted.
The panel also suggested that banking services should be kept out of GST or at least be charged a lower rate so that a sharp increase in the tax burden, if GST rate is way above the 14% now levied on services, would not add to the cost of doing business in India.
Moily said that GST has to be implemented along with the direct tax code the UPA was contemplating. “Both together will definitely have holistic approach for the tax reforms,” he said.