NEW DELHI: In a bid to get Congress on board for one of the biggest tax reform moves, the Centre may back more than one GST rate — targeted mainly at luxury and sin goods — amid indications that it could drop the proposal allowing manufacturing states to levy up to 1% additional tax.
Instead, the government will compensate manufacturing states such as Gujarat, Maharashtra and Tamil Nadu directly, which will increase the burden on the exchequer during the first two years.
Though it is trying to meet Congress’s demand midway, tment bill and setting up of a dispute resolution panel comprising judges, on the grounds that it would create a flawed structure.
Sources in the government argued that the proposal on setting up a panel of judges was not acceptable to the state governments, which feared erosion of their legislative powers.
Similarly, they argued that the proposal to specify an 18% cap would introduce inflexibility into the system as it would mean that any increase by a handful of states necessitated by a natural calamity would require an amendment to the Constitution. Similarly, to pass on the benefits of higher collections by reducing the rate may also need an amendment that would be a long-drawn affair.
“When tariff rate has to be mentioned in the Constitution itself, (then it) is a flawed architecture… Because the GST with flawed architecture can actually damage the system much more than it can benefit,” finance minister Arun Jaitely had said at an industry event last week.
While a committee headed by chief economic adviser Arvind Subramanian is finalizing the revenue neutral rate for goods and services, sources indicated that the same could not be applied to all products.
“You can’t have the same rate for BMW or other luxury cars. Similarly, when alcohol, which is a sin good, comes into GST, the rate has to be different for a premium brand,” said a source, who suggested that the way out could be to have more than one GST rate.
Congress, however, is unwilling to settle for any dilution so far. The Congress has blocked the bill to amend the Constitution for rolling out GST by April and is insisting on amendments to the legislation introduced by the government.
Congress is firm that the GST rate should be specified in the Constitution amendment bill. “Even when you have to make changes in the finance bill, you have to come to Parliament. So why can’t you have a rate mentioned in the Constitution amendment bill?” asked a leader.
He also said a dispute resolution entity compromising state and central government members could not decide on disputes and there was a need for a much broader entity on the lines of TRAI and others.
Although PM Narendra Modi Modi and Jaitley met Congress president Sonia Gandhi and former PM Manmohan Singh on Friday, a consensus is yet to emerge, something that the BJP government is now keen to achieve.
“We want the GST bill to be passed with a broad consensus rather than majority. We want to see that issues are dealt with by consensus,” parliamentary affairs minister Venkaiah Naidu said on Sunday. Naidu was part of the consultations that Modi had with the Congress brass.