With the Congress informally coming around and residual Centre-state issues being ironed out, the government has listed for Wednesday the Constitutional Bill for Goods and Services Tax (GST) for consideration and passage by the Rajya Sabha. The BJP also issued a whip to its members asking them to be present in the House for the next three days during which the party expects the legislation to be passed.
The Bill, cleared by the Lok Sabha in May last year. brooks no further delay as it could give the economy, in dire need of aggressive private capital investment, a leg-up by mitigating cascading of taxes in business-to-business transactions.
Last week, the Cabinet announced some changes in the Bill. It dropped the plan to have an additional 1% tax by producing states and reinforced the terms for compensating all states for any revenue loss in the first five years after the GST roll-out. Additionally, the Centre is now learnt to have agreed to include the GST rate cap in the GST Acts to be passed by the Centre and states. The guiding principle for determination of the rate would be spelt out in the current Bill itself, sources said. The rate would neither result in revenue loss to states nor hurt the consumer, they added. Besides, the Centre was willing to give the states “more say” in the dispute resolution mechanism, the sources said, without elaborating.
While these were among the demands of the Congress, which has 60 members in the 244-member Rajya Sabha, where the ruling NDA’s strength is only 72, the government has, thanks to several rounds of placatory talks with the main opposition party over the last few days including on Monday, made it relent on its demand for inclusion of a GST rate ceiling of 18% in the Constitution.
For the Bill to sail through the RS, two-thirds of its members (among not less than 50% present) should vote in its favour. Since the RS will be passing the Bill with amendments, it will go back to the Lower House again for ratification. Several major non-NDA parties like the SP, NCP, Trinamool Congress, JD(U), CPI(M), etc, are inclined to support the Bill along with many independents. The majority of state assemblies need to vet the constitutional Bill, which proposes to give states the power to tax services and the Centre transactions beyond the factory-gate, subsequently. The Bill also envisages the creation of a powerful GST Council with representation of both the Centre and states. A dispute-resolution mechanism, with a certain degree of independence, is also mooted.
On the issue of the GST turnover threshold (the Centre has mooted Rs 10 lakh for all states expect the northeastern ones where the threshold will be R5 lakh) and the issue of dual control, the Centre and states were close to an agreement, the sources added. While the states want exclusive right to tax transactions of the businesses up to a turnover of R1.5 crore and dual (Centre-state) control beyond that, the exclusive control for states may be allowed only in case of firms with a lower turnover level, sources indicated. The Centre reckons that dual control is administratively cumbersome and could confuse taxpayers.
A committee headed by chief economic adviser Arvind Subramanian had earlier suggested the standard GST rate at an attractive 17-18%, a level that would be competitive at least among some emerging market economies and against the EU. The committee whose the principal mandate was to define the revenue-neutral rate (RNR) for the GST put it at 15-15.5% with preference for the lower end of that and a strong bias against keeping exemptions. The RNR, which as the name suggests would preserve the revenue levels for the Centre and states and hence not fan inflation, could manifest itself in three rates — apart from the standard rate, there would be a “low rate” of 12% for essential goods and a demerit rate of a prohibitive 40% on tobacco products, aerated beverages, luxury cars and the like, the panel had said. Separately, the National Institute of Public Finance and Policy had reckoned the RNR to be 17.7%, but the tax bases the two panels had estimated were different too. Finance minister Arun Jaitley had indicated that he would want the standard GST rate to be lower than 18%.