New Delhi: The Union cabinet on Wednesday approved key changes to the constitution amendment bill for goods and services tax (GST), doing away with a 1% additional levy on supply of goods, and proposing full compensation to states for five years for revenue loss arising from transition to GST.
The changes pave the way for the bill to be tabled in the Rajya Sabha, where the numbers, while not completely in favour of the National Democratic Alliance, are more favourable than they have been in over two years.
The GST rate won’t be capped at 18%, the rate proposed by a panel led by chief economic adviser Arvind Subramanian. Disputes will be decided on the basis of a mechanism devised by the GST Council and not by a dispute resolution panel.
Both these, and doing away with the proposed 1% additional levy, were key demands of the Congress, which had insisted they be met if it was to back the legislation.
“The cabinet met and discussed the amendments to the 122nd constitution amendment bill. It has been decided to do away with the 1% tax," said a minister who did not want to be identified.
The changes are in line with the recommendations of a select committee of Parliament and have received states’ backing.
Passage of the GST bill in the ongoing monsoon session will be crucial for the government to meet the 1 April 2017 deadline for roll-out of the tax that aims to unify this country into a single market by removing inter-state barriers to trade in goods and services. Experts say that the bill could increase gross domestic product (GDP) by as much as two percentage points.
The numbers are much more favourable for GST bill’s passage than before for the government in the Rajya Sabha. The government needs a two-third majority for the passage of this bill.
The NDA has 72 members of Parliament (MPs) in the 245-member house and requires the support of 163 members to pass the legislation.
The main opposition party Congress with its 60 seats and the All India Anna Dravida Munnetra Kazhagam (AIADMK) with 14 members have been against the bill. Some of the Congress concerns have been met through changes approved by the cabinet on Wednesday, but the AIADMK remains opposed on concerns of loss of revenue.
The government stands a chance of getting a two-third majority in Rajya Sabha if it’s able to consolidate all non-Congress, non-AIADMK votes.
The government has managed to split the opposition by winning support for the GST from regional parties such as the Samajwadi Party, which has 19 MPs, Bahujan Samaj Party (6), Janata Dal (United) (10), Nationalist Congress Party (5) and Rashtriya Janata Dal (3).
The government already has the support of 12 MPs of the Trinamool Congress and eight of the Biju Janata Dal. But it still has to bring the Communist parties, which have nine MPs, on board to cross the magic figure on 163. The Left parties have so far maintained that they will move amendments to the proposed bill to raise their concerns.
While senior leaders of the government are keen to build a consensus on the issue, there is no clarity when the government wants to table the bill in Rajya Sabha. The business advisory committee has already allotted five hours for the discussion of the GST bill. Senior ministers have reached out to Congress.
The constitution amendment bill received Lok Sabha’s nod in May last year, but the Congress stalled it in Rajya Sabha, insisting that its demands be met.
The government subsequently referred the bill to a joint committee of Parliament that submitted its report in July 2015.
“The cabinet’s clearance of crucial amendments in the Constitution Amendment Bill in response to Empowered Committee discussions like removal of 1% origin tax, and five years compensation to States is indeed very welcome and will pave the way for political consensus and early passage of bthe ill in the monsoon session," Harishanker Subramaniam, national leader, indirect tax, EY, wrote in a note.
Elizabeth Roche contributed to this story.