Congress signals GST rethink at Davos


(From left to right) Finance minister Arun Jaitley, Nouriel Roubini and Sunil Bharti Mittal at World Economic Forum in Davos, Switzerland. Photo: PTI

Kamal Nath says party is willing to be flexible in its demand to cap GST rate in the constitution but remains firm on removal of 1% additional levy


New Delhi: Hopes of the goods and services tax (GST) getting legislative approval have revived afresh—the Congress has signalled it is willing to be flexible on its demand to cap the GST rate in the proposed constitution amendment bill.

The Congress has demanded that the 1% additional levy on supply of goods and services should be done away with. It also favoured the tax rate to be capped at 18% in the constitution amendment bill for GST and sought an independent dispute resolution mechanism for settling disputes between states.

“Why should you have an additional 1% levy on interstate movement of goods? The second thing is the cap on rates. I hope they (the government) do say that I accept the cap but let’s not have it in the Constitution. That means the only issue will be how it should be framed,” Congress leader Kamal Nath said on Wednesday at a debate organized by NDTV at the World Economic Forum in Davos.

At present, a deadlock between the Congress and the National Democratic Alliance (NDA) government has prevented the bill getting a nod from Rajya Sabha; it has already been approved by Lok Sabha.

The centre has indicated that it is willing to consider some of the demands of the Congress but has so far been unable to get the bill passed in the Rajya Sabha, where the NDA is in a minority. It was initially expected that the bill will be passed in the monsoon session of Parliament last year and that the GST will be rolled out by 1 April 2016.

Responding to Nath’s comments, Union finance minister Arun Jaitley pointed out that the GST was originally a Congress initiative; by insisting on the inclusion of the GST rate in the constitution amendment bill, it is demanding something it hadn’t proposed when the party was in power.

Including it in the bill would effectively mean amending the law every time the tariff needs to be revised.

“RNR (revenue neutral rate) that the government suggested is 15-15.5%. No tariff can be perpetual. If volumes increase, it can go down. In a crisis, it can go up. None of your finance ministers (Pranab Mukherjee and P.Chidambaram) proposed it. How can we go every time to the states if we want interest rates to be raised,” he said.

“I’m willing to go back to the manufacturing states for the 1%. On dispute resolution, what I have done is what Chidambaram has noted in the file,” he said.

R. Muralidharan, senior director at consulting firm Deloitte Touche Tohmatsu India Llp, said that it is desirable to keep the GST rate out of the constitution amendment bill since there may always be a need to change the rates.

“One can cap tax rates in the GST bill also, rather than in the constitution amendment bill. At present, peak rates of duties (indirect tax rates) are part of the act, and any changes within that cap can be done by only a notification,” said Muralidharan.

If there is agreement between the principal opposition party and the government, the bill could be passed in the upcoming budget session of Parliament beginning in February.

This could see the GST rolled out in 2016-17.

The NDA has 63 members of Parliament (MPs) in Rajya Sabha whereas it needs at least 163 out of the total 245 MPs to vote the constitutional amendment bill through. This makes the support of the Congress, with 67 MPs, crucial.

The GST aims to remove barriers across states and unite the country into a common market. The government had introduced the provision of the additional 1% tax—considered distortionary since it disincentivizes movement of goods between states—at the behest of manufacturing states, such as Gujarat and Tamil Nadu, which were worried about revenue losses due to the destination-based tax nature of this indirect tax reform.

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