The country’s biggest tax reform moved one step closer to fruition with the GST Council broadly clearing the CGST and IGST bills.
The Goods and Services Tax (GST) Council headed by Finance Minister Arun Jaitley on Saturday broadly cleared the crucial Central GST (CGST) and Integrated GST (IGST) bills, as the country moved a step closer towards implementing its biggest tax reform on July 1.
“‘The compensation, IGST and CGST laws have now received the formal nod of the council,” said Finance Minister Arun Jaitley, who heads the Council. “The decision was unanimous and all the states supported it.”
At its eleventh meeting on Saturday, the GST Council was also expected to clear the legally vetted draft laws for State GST (GST) and Union Territory GST (UTGST) bills. Jaitley said the panel would now meet on March 16 – while Parliament is in session – to finalise these laws.
“The legal committee will finalise the SGST and UTGST bills in the next three days and circulate it to the state assemblies for approval,” said Jaitley.
West Bengal Finance Minister Amit Mitra said while the IGST and CGST laws had broadly been cleared, the states had wanted 26 minor changes. He added that the legislation will provide for cross empowerment of state and central officers.
J&K Finance Minister Haseeb Drabu said the Centre had accepted the proposals and the Council would take a final view on the two laws in its next meeting.
Once the decks are cleared, the government will introduce the model GST law, which provides a common draft of CGST law, SGST law, IGST law, UTGST law and Compensation Law, in Parliament in the second half of the Budget Session beginning next week.
Last month the Council cleared the draft compensation law, according to which the Centre will have to fully compensate states for any revenue loss for five years after migrating to the new tax system.
Vetting of the legal language of the draft CGST, IGST and SGST laws raised a couple of issues that had to be clarified to the legal department of the Council. As a result, these laws were not cleared in the last meeting in February.
The legal committee had questions on some of the issues including Composition of Appeal tribunal in Centre and States and eligibility of members, delegation of powers, exemptions during the transition phase, services and Value Added Tax in works contracts, as well as definition of agriculture.
Under GST, the states and the Centre will collect identical rates of taxes on goods and services. For instance, if 18 percent is the GST rate on an item, the states and the Centre will get 9 percent each called the CGST and SGST rates.
The Centre will also levy and collect the IGST on all inter-State supply of goods and services. The IGST mechanism has been designed to ensure seamless flow of input tax credit from one state to another.
The GST Council is also said to have proposed raising the peak rate in the model GST Bill to 20 percent from existing 14 percent, which may lead to a peak GST levy move up to being as high as 40 percent (20 percent central and 20 percent state). But Mitra said such a proposal was off the table.
This would be only an enabling provision to ensure that Parliamentary ratification is not required if the rate need to be increased in the future for an exigency. The effective peak rate will continue to remain at 28 percent.
Last year, the council had agreed on a four-slab structure –5, 12, 18 and 28 percent. Jaitley said on Saturday that while the slabs will remain the same, the ceiling had been fixed at 40 percent.
The draft of model GST law provides for a maximum rate of tax at 14 percent, which would imply an equal 14 percent central GST and state GST, taking the total to 28 percent.
The rates committee, comprising officials from the Centre and the States, will soon determine which commodity will fall in which rate slab.