A decade-long effort by successive governments to usher in the most sweeping reform of indirect taxes finally moved a step closer to realisation on Wednesday, with the Rajya Sabha clearing the Constitution (122nd Amendment) Bill to enable a goods and services tax (GST) regime.
The momentous Bill, which marks the first parliamentary step towards impementation of a “one country, one market, one tax” framework, was cleared by a two-thirds majority, which is required for any Constitution Amendment Bill, following a division of votes. The AIADMK, which walked out before the vote, was the only party to oppose it.
Soon after the Bill was passed, Prime Minister Narendra Modi hailed the vote. The GST, he said on Twitter, would be the “best example of cooperative federalism. Together we will take India to new heights of progress.”
Finance Minister Arun Jaitley, who moved the Bill for voting after a debate spread over seven hours, assured the Upper House that the GST rate would be kept as low as possible, and would be “much lower than the present situation”.
The debate saw strong arguments and counter-arguments, a clash between of two lawyers — former Finance Minister P Chidambaram and Jaitley — demands from the Opposition that Prime Minister Narendra Modi be present in the House, and a curious voting exercises that kept springing numerical surprises.
The Bill, which incorporates fresh amendments based on inputs from political parties and the States, does not have the earlier provision for a 1 per cent additional tax on inter-State trade that would have been given to manufacturing States. It also specifies that the GST Council “shall” set up a mechanism to adjudicate disputes arising between the Centre and the States or between States, and that the States’ revenues will not go into the Consolidated Fund of India. It also guarantees compensations to the States against revenue loss for five years.
Moving the Bill, Jaitley said, “The government felt it was necessary to gradually build a larger consensus as we were trying to radically change the country’s taxation structure. GST will give a boost to the economy which is now at a critical stage.”
A common concern across parties was that the the tax rates be kept low to ensure that the tax incidence on people does not increase and lead to higher evasion. “The standard rate of GST should not exceed 18 per cent and the lower rate can be worked on that,” said Chidambaram, in his maiden speech in the Rajya Sabha.
Although he said the Congress would support the Bill, he added that his party would expect the government to incorporate the tax rates in the subsequent GST legislation.
Three key concerns
Apart from the rates, Chidambaram also listed three key concerns of his party, including the rate of tax, the dispute resolution mechanism, the 1 per cent tax on inter-State trade and the “clumsy drafting” of the latest amendments specifiying that the States’ revenue would not go into the Consolidated Fund.
He also suggested further amendments to the provision of dispute resolution to include that the GST Council “shall by regulation” establish a mechanism to adjudicate disputes. These should also include disputes arising otherwise between States outside the recommendations of the GST Council.
Congress leaders, including Chidambaram, Anand Sharma and Ghulam Nabi Azad, also sought an assurance from Jaitley that the subsequent pieces of legislation on Central GST and State GST would be introduced as financial bills, and not money bills, to ensure that the Rajya Sabha too has a chance to discuss it. This was a common refrain from most Members of the Upper House, including CPM leader Sitaram Yechury. However, Jaitley refused to accede to the demand and said it would be decided based on the final format of the Bills. Yechury also called on the government to ensure that the States do not have to come to the Centre “with begging bowls”.
N Navaneethakrishnan, AIADMK MP, articulated his party’s opposition to the GST as it would cause a permanent revenue loss to Tamil Nadu.
The Constitution Amendment Bill for GST was cleared by the Lok Sabha in May last year, but fresh amendments were introduced last week to accommodate the demands of the Congress and the concerns of the States. The government hopes to roll out GST from April 1, 2017.