The Union Cabinet on Wednesday cleared important changes to the government’s constitutional amendment Bill on the proposed national goods and services tax (GST). However, exact modalities of a crucial change to limit up to one per cent tax over GST to inter-state sale of goods would be decided later, a move taken to woo dissenting parties.
The changes were based on recommendations by the Rajya Sabha panel which examined it; the committee’s report was given a few days earlier. The revisions are likely to be introduced in the House’s ongoing session. The Lok Sabha had earlier passed the legislation, which means it will have to now approve these changes.
The constitution amendment is an enabling mechanism to allow the Centre and states to impose a GST. After its passage, the new indirect tax regime would require another central law, as well as state laws, on a GST. The Bill passed by the Lok Sabha had a provision for levy of a tax up to one per cent additional to the GST, for inter-state supply of goods. The idea was to help producing states in the switchover, as GST is a destination-based tax. However, this had drawn criticism for those who said it would have a cascading effect.
To address the interests of both sides, the panel had recommended the proposed GST law say inter-state movement of goods wouldn’t be taxable if without a consideration, meaning the movement of goods within the same company (stock or branch transfers) would be exempt.
The cabinet decided to defer determining the details of the mechanism to restrict the tax of up to one per cent over GST on inter-state movement of goods for a consideration. It may come up either in the GST law or GST rules later.
The Rajya Sabha panel had also suggested that compensation to states should not decline from the fourth year. The current Bill said states would be fully compensated for their losses for the first three years after the switch; this would fall to 75 per cent in the fourth year and 50 per cent in the fifth. The panel wanted full compensation for five years, not a tapering one. The suggestion has been cleared by the Cabinet.
Sources said the government believes it would take two days for the Rajya Sabha to clear the revised Bill. Then, it would have to go to the Lok Sabha.
The Congress party, the main dissenter all along, has said it rejects the changes approved by the Cabinet. The bill’s passage requires a two-thirds majority of those present and voting in each of the two Houses. The Congrees, AIADMK and Left parties, all of which had given dissent notes to the Rajya Sabha panel report, have a total of 89 members in the 245 in that House. If they all vote against, the two-third majority would fall short of seven votes. Congress spokesman Randeep Singh Surjewala said the bill approved by the Cabinet was pitted with compromises. Among other things, the party wanted to completely do away with the up to one per cent tax on inter-state sale.
Saloni Roy, senior director, Deloitte in India, said apart from the issue of passage in the Rajya Sabha, there was a question on whether business would get enough time for a transition from the current indirect tax regime to the proposed GST regime. And, if the information technology infrastructure for GST implementation would be ready by April next year, the government’s target date for implementation.
Source: Business Standard