The select committee of the Rajya Sabha has approved the 122nd Constitution Amendment Bill that would enable the government to introduce the Goods and Services Tax (GST). It was introduced in the Lok Sabha during the Winter Session of Parliament last December. It could, however, not be passed with the Opposition parties opposing it along with the insurance bill. While the amendment cleared by the Rajya Sabha panel is more or less the same as the earlier bill, it made one important change that is expected to soften the opposition from the states: the provision of compensation for a full five years to the states for any losses suffered by them due to the GST.
Earlier, the compensation was phased out with full compensation for only the first three years, 75 per cent in the fourth year and 50 per cent in the fifth year. Full compensation was one of the demands of the states so to that extent it was an astute move for the part of the Upper House panel. The select committee also reportedly suggested that the one per cent tax over and above the GST be replaced by a one per cent tax only in case of inter-state supply of goods for a consideration.
This, they said, would help the manufacturing states, like Gujarat and Tamil Nadu. It is a good move on the part of the panel to recommend that as many articles as possible should to be brought under the purview of GST so that the tax rate could be moderate and spread out. It has suggested that items like tobacco and tobacco products, alcohol and electricity supply and consumption be brought under GST. It has, however, left it to the GST Council to decide whether to include petroleum products. The panel did not take any decision on the GST rate, leaving it to the committee chaired by the chief economic adviser to the government, Mr Arvind Subramanian, who said it should be ready in six weeks.
The sub-panel of the empowered committee of state finance ministers had earlier recommended a revenue-neutral GST rate of 27 per cent and Union finance minister Arun Jaitley said it would not be more than 27 per cent. The states and other stakeholders want it at 18 per cent, to be shared by the Centre and the states. It would not be an exaggeration to say that if this bill is passed it would be a game-changer — one of the most spectacular reforms in independent India. It would simplify the indirect tax procedure and eliminate the burden of age-old taxes, like sales tax which was a source of harassment and corruption. It would also prevent leakages of revenue and it is estimated to add nearly two per cent to national GDP.
