GST: Jaitley amenable to 2 of 3 Cong demands

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(From left to right) Sumit Mazumder, President, CII, Finance Minister Arun Jaitley and Chief Economic Advisor Arvind Subramaniam during a session on “GST in India” jointly organised by CII, FICCI and ASSOCHAM in New Delhi

Rules out specifying the rate cap in Constitution as impractical and short-sighted, but indicates willingness on tax limit and inter-state levy

The government could concede to two of the three key demands of the Congress party on the proposed goods and services tax (GST) but giving way on the third is unlikely.

The two on which giving of ground is possible are keeping the rate capped at 18 per cent and withdrawing a proposal to impose an additional one per cent tax on inter-state trade of goods. However,  it is not likely to have a Constitutional cap on the GST rate.

With barely a week left for Parliament’s winter session to conclude, finance minister Arun Jaitley on Wednesday said the standard rate under GST, to apply to a majority of goods, would be actually well below 18 per cent. He also hinted at accepting the other Congress demand, on the one per cent extra levy.

Addressing business representatives, he said it was “settled” that the standard rate was going to be less or much less than 18 per cent. He referred here to the recent recommendation of the panel headed by Arvind Subramanian, the government’s chief economic advisor.

Jaitley added there’d be no single rate for all goods and services. “For commodities used by the weaker section, the aam aadmi (tax rate) will be lower (and) for the rest of the commodities, you will have a standard rate. For luxury products, ‘sin’ products, the rate will be higher. Therefore, it is irrational to say that we (must) put an 18 per cent cap in the Constitution.”

The Subramanian report has recommended a lower rate of 12 per cent, a standard rate of 17-18 per cent and a ‘sin tax’ of 40 per cent for demerit items like aerated drinks, luxury cars, tobacco, etc. The standard rate is to apply to most goods and services.

On the one per cent additional tax,  Jaitley said, “I have told my friends in Parliament that I am ready to go back to those manufacturing states and tell them we have guaranteed you to make good for all the loss suffered in the first five years. So, this one per cent additional levy issue is resolvable.”

The government had proposed this additional tax on inter-state movement of goods for two years, to compensate for the revenue loss of manufacturing states like Gujarat and Tamil Nadu under the proposed GST regime. States currently charge central sales tax on products made in their ambit but sold outside their territory, which will not be available under the GST regime.

“These states were of the opinion that they, having spent money on putting up infrastructure, would lose on revenue, as GST is more of a destination tax,” the minister said.

Jaitley addressed representatives of business associations Ficci, CII, Assocham,  PHD Chamber and Confederation of All India Traders.

After the Congress-led opposition to the government proposals, the Constitutional amendment bill in this regard was referred to a Rajya Sabha panel. The latter had recommended diluting the one per  cent tax proposal, to confine it to only inter-state trade of goods and not branch transfers. However, the Congress  is against this as well.

GST will subsume all present indirect taxes like excise duty, sales tax and service tax.

On the other condition of incorporating an 18 per cent tax cap in the Constitution bill, Jaitley said,  “Are tariffs (rates) part of a Constitution? Can these ever be cast in stone?…Suppose there is a drought or a flood in 10 states and for one week, you need to raise these, are you then going to amend the Constitution?”

On another contentious issue, that a dispute resolution mechanism should be created by the Centre, the minister said states wouldn’t accept this. “Parliament itself has accepted a very simple position, that the dispute should be resolved by the (proposed) GST Council,” he said. “And, if (differences) still persist, the Council will create the dispute redressal mechanism. That issue actually becomes a non-issue. So, the issues are actually resolvable, provided there is an intention to resolve these.”

He accused the Congress of setting a wrong precedent for future opposition parties, by continuously disrupting Parliament. He said decision making in the future would have to then shift to executive action and money bills, as legislative activity is going to become increasingly more difficult.

Source : http://www.business-standard.com/article/economy-policy/gst-jaitley-amenable-to-2-of-3-cong-demands-115121601015_1.html

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