Cabinet clears Constitutional Bill for GST

The Cab­i­net on Wednes­day cleared the GST Con­sti­tu­tion­al Amend­ment Bill for its tabling in the cur­rent ses­sion of Par­lia­ment, as it races against time to keep the April 2016 dead­line to ush­er in the near­ly all-encom­pass­ing indi­rect tax that will uni­fy mar­kets and avoid tax cascades.

Although states have not said it in so many words, on many con­tentious issues, the Cen­tre could get them agree after a series of con­fab­u­la­tions over the past week. The Centre’s deci­sion to table the Bill that seeks to allow it to tax trans­ac­tions beyond the first point of sale of goods at the fac­to­ry gate and states to tax ser­vices is also seen as a per­sua­sive tactic.

The Con­sti­tu­tion 122nd Amend­ment Bill requires to be passed by both hous­es of Par­lia­ment (with votes of two-thirds of the mem­bers present) and half the state legislatures.

The Bill, as cleared by the Cab­i­net, doesn’t exclude petro­le­um prod­ucts from the purview of GST, but the Cen­tre may agree to keep them out for an ini­tial three to four years to address states’ con­cerns. Even­tu­al­ly, tax­es on petro­le­um prod­ucts — which account for rough­ly a third of the com­bined indi­rect tax rev­enues of the Cen­tre and states — will also col­lapse into GST. Entry tax­es are sub­sumed in GST while, accord­ing to the Bill, alco­hol and tobac­co are excluded.

The pro­posed GST coun­cil with which cru­cial pow­ers like inclusion/exclusion of items and rates of tax will be vest­ed will have statu­to­ry back­ing. The Cen­tre retains veto pow­er in the GST coun­cil, although it rep­re­sents one-third of the quo­rum. The Bill also pro­vides com­pen­sa­tion for any rev­enue loss to states post GST roll-out, a move to boost the con­fi­dence of states in the pro­posed regime. GST, which sub­sumes all major indi­rect tax­es except basic cus­toms duty, will have two com­po­nents: Cen­tral GST and state GST. It will apply on all com­mer­cial trans­ac­tions by busi­ness­es with an annu­al turnover of Rs 10 lakh and above.

Although a sub­com­mit­tee under the empow­ered com­mit­tee of state finance min­is­ters had rec­om­mend­ed a rev­enue-neu­tral rate of close to 27% for GST, rev­enue sec­re­tary Shak­tikan­ta Das said on Wednes­day that the actu­al GST rates will be decid­ed by the GST council.

A pan­el set up by the 13th Finance Com­mis­sion had ear­li­er pro­posed an RNR of 12% (7% for states, 5% for the Cen­tre), but it sug­gest­ed a much larg­er base for tax­a­tion by includ­ing almost all goods and ser­vices and even the stamp duty on real estate trans­ac­tions. Experts say the econ­o­my could derive the ben­e­fits of GST only if the tax base is as com­pre­hen­sive as pos­si­ble, the rates are mod­er­ate and every busi­ness except the final con­sumer gets input tax cred­it. The Cen­tre aims to get the Con­sti­tu­tion­al Bill passed in the Bud­get ses­sion. The leg­isla­tive process for GST will also include pas­sage of cen­tral GST Bill and inter-state GST Bill by Par­lia­ment and state GST Bills by each state.

Source: Finan­cial Express