GST bill passed by Lok Sabha, action now shifts to states4 min read . Updated: 09 Aug 2016, 08:24 AM IST
Lok Sabha clears GST bill as amended by Rajya Sabha; govt to now seek consensus from states, but issues of GST rate and revenue control remain
New Delhi: The country moved a step closer to rolling out the goods and services tax (GST) regime on Monday after Parliament passed the 122nd constitution amendment bill.
The action will now shift to the states as the government seeks to get the bill ratified by a majority of the Indian states within the next one month to stay on course for its 1 April 2017 deadline on implementing the seminal tax reform.
However, consensus over the rates under GST will not be easy to achieve as the centre favours a moderate rate and the states are seeking a minimum rate of 20%.
Issues of administrative control over traders and the revenue threshold below which traders will be exempted from GST also saw differing responses across the political spectrum, indicating that major challenges still lie ahead in arriving at a consensus.
The end of the stalemate has been welcomed by rating agencies as credit-positive as it reflects the National Democratic Alliance’s (NDA’s) ability to bring in reforms that need the legislature’s approval.
On Monday, the Lok Sabha passed the bill as amended by the Rajya Sabha with near consensus, more than a year after it initially passed the bill.
GST, a destination-based tax, will subsume various indirect taxes at the central and the state levels including excise duty, service tax, value-added tax, entertainment tax and luxury tax.
It will remove all barriers across states and integrate the country into a common market. It will also eliminate the cascading impact of the current indirect tax regime and check tax evasion. When implemented, it is expected to add 2 percentage points to the gross domestic product and improve revenue buoyancy.
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Speaking during the debate in the Lok Sabha, Prime Minister Narendra Modi said GST is an important step towards freeing India from tax terrorism and pointed out that the “consumer will be king under GST".
“We did not want a divided Parliament to pass it because it would not be good for this tax as political parties rule some state or the other. It is the strength of the democracy that most of the states and political parties now support this bill," said Modi, adding that GST will aid in reducing tax evasion and eliminating corruption as it will minimize the interface between the tax payer and tax officials.
Modi also sought to counter the perception that GST will lead to inflationary pressures.
“More than 55% of the items in the consumer price inflation index—food and essential items—are outside GST," he said.
Appealing to the common man, Modi said GST will help in eliminating poverty.
“Cost of collection (of indirect taxes) will come down under GST, which can be used for welfare of the poor," he said.
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Once the constitution amendment bill receives the President’s nod, a GST council will be set up that will finalize the design of GST, including issues such as the tax rates, revenue thresholds and steps to prevent dual control over traders.
The council will finalize the draft of the three model legislations—central GST law (CGST), state GST law and the integrated GST law (IGST). The CGST law and IGST law has to be passed by Parliament while the state GST law has to be passed by the respective state legislatures. The government is aiming to get the two legislations passed in the winter session of Parliament.
Replying to the debate, finance minister Arun Jaitley sought to assuage concerns about high tax rates under GST and the consequent impact on the common man.
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“The GST council will decide on the rates. No state will want a rate that will lead to excess profiteering or a rate that will not even pay the wages of its employees," he said.
“Every state said that our calculation is different from the chief economic adviser’s report (that talked about a standard rate of around 17-19%). That is why the gap of 2, 3, 4% that is there has to be converged."
Jaitley also said the need for an anti-profiteering clause will be known only when the GST council decides on the tax rate. “If the GST council thinks that it is required, then this will come in a specified situation," he said.
Jaitley added that the government had responded to letters from the Kerala and West Bengal finance ministers over provisions on the integrated GST.
In the debate, the government came under attack from the Congress for increasing indirect taxes while reducing direct taxes.
Deepender Hooda, Congress MP from Haryana, said that after coming to power, the NDA reduced the corporate tax rates to benefit industrialists, but increased indirect taxes that affect the common man.
“This government’s economic policies have increased the tax burden on the poor and it will lead to increase in inequality," he said.
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Experts welcomed the bill’s clearance by Parliament.
“While passing of the GST bill by Lok Sabha was a foregone conclusion, it is good to see the urgency shown by the government. It seems that the government is seriously working towards meeting the 1 April deadline," said Pratik Jain, leader, indirect tax, at PricewaterhouseCoopers India. “The PM’s statement that basic food items will be exempt from GST is a positive, especially given concerns around inflation," he said.