GST Bill passed 203:0 in Rajya Sabha; India nears unified market

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New Delhi | Updated: August 4, 2016 11:54:48 AM

Rajya Sabha adopts GST Bill, voting 203 to 0 after AIADMK members walk out

The finance minister should assure the House that the CGST and i-GST Bills will not be introduced as money Bills but as finance Bills which require both Houses to vote — there will then be a full discussion on the revenue-neutral rate, P Chidambaram Former finance minister (PTI)The finance minister should assure the House that the CGST and i-GST Bills will not be introduced as
money Bills but as finance Bills which require both Houses to vote — there will then be a full discussion on the revenue-neutral rate, P Chidambaram Former finance minister (PTI)

The Rajya Sabha on Wednesday passed the GST (122nd Constitutional Amendment) Bill after a six-hour discussion, paving the way for a single indirect tax rate that will subsume all indirect levies, creating a seamless market across states. The AIADMK walked out in protest, saying its demands had not been met.

A total of 203 members of the Upper House with current strength of 244 voted in favour of the Bill, more than meeting the Constitutional requirement of majority of the House and majority of not less than two-thirds of the House present and voting.

Commending the Bill to the House, finance minister Arun Jaitley said the new tax would boost revenues, discourage evasion and end the current ‘tax on tax’ system. “The current rate of 27% is too high and inflationary so the states and the Centre have agreed the rate must come down. However, as the states are unwilling to accept the standard rate of 18% suggested by the Arvind Subramanian panel, this (the rate) could move up slightly. We will collect what is essential for the present revenue requirements,” he said in his reply to the debate.

While the Opposition demanded an assurance from Jaitley that the CGST Bill and the i-GST Bills, when they are introduced in November, would be introduced as finance Bills and not as money Bills, Jaitley responded saying the government would comply with the Constitution and the precedents. “We have no intention of bypassing the Constitution,” Jaitley said, adding it was unreasonable to expect an assurance when the contents of the Bill were unknown. “We will have a discussion once there is a draft Bill and the house can participate,” Jaitley said.

WATCH: GST Bill Passed: One Country, One Tax!

The legislation for the destination-based tax, endorsed by the Lok Sabha in May 2015, must now be ratified by 50% of state legislatures before it can become law. The NDA government has been working to build political consensus on the GST and hopes to have it in place by April 2017. To this end it made several amendments to the draft Bill, inter alia removing the additional 1% interstate levy on the supply of goods, a key demand of the Congress party and making it compulsory for states to be compensated for any loss of revenue for a period of five years.

In addition the government has made it legally incumbent on the proposed GST Council to establish a mechanism to adjudicate disputes arising out of the council’s decisions.

Speaking during the discussion, former finance minister P Chidambaram observed the dispute redressal mechanism must be set up ex-ante and urged the finance minister to strengthen the provision to includes disputes that may arise “other than” those between the government and a state or between states.

The original Bill had envisaged a judicial or a quasi-judicial body but the standing committee felt the issue were political in nature and, therefore, there was no need for a judicial tribunal.

The GST essentially eliminates the cascading effect of excise duties across the supply chain by allowing manufacturers, traders and service providers to take credit for taxes on inputs. However, with five sectors — potable alcohol, petroleum, construction, electricity and natural gas — remaining out of the purview of the present legislation, the legislation is far from perfect and would not have the desired results. Tax expert Satya Poddar told FE that with these segments out of the ambit of the tax, the cascading impact would not be eliminated. Poddar added that given the lack of consensus over the tax base and the standard rate it was hard to see “the imperatives of a broader base and moderate rate” being met.

There has yet been no consensus on the rate of the GST. The panel headed by chief economic adviser Arvind Subramanian had pointed out that domestic production would get a boost since the central sales tax would no longer be in effect and neither would the countervailing duty. The panel had recommended a revenue-neutral rate (RNR) of 15-15.5%; this is the rate at which the current collections the state governments and the Centre would be protected. Beyond this, a standard rate of 17.69% was arrived at, based on certain assumptions. Currently, services are taxed at nearly 15% (including the Krishi Kalyan cess) while the combined levies of the states and the Centre on approximately 70% of goods is on average 27-30%.

The states will have two-thirds of the voting rights in the GST Council while the Centre will have a one-third right. A resolution will need to be passed by a three-fourths majority. “The powers of Parliament have not been taken away,” Jaitley said, adding that Parliament will make laws on the recommendation of the GST Council. “The council will make recommendations on taxes or cesses to be subsumed.”

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