India’s biggest-ever tax reform since Independence crossed the big hurdle. All four Bills to give effect to the Goods and Services Tax (GST) were approved by the Lok Sabha on Wednesday evening. They will now go to the Rajya Sabha for consideration, but the House, where ruling party is in a minority, cannot overturn them as they are listed as 'Money Bills’.
The Opposition raised many questions and even moved amendments, which were nullified, some with voice votes and others by division. Since the date set for the rollout has been fixed on July, the government will have to prepare a fine print, decide on tax rates on commodities and set up procedures and modalities over the next few months.
The legislation will create a single tax all over the nation, bringing down the cost of logistics, which, is 14 per cent in India now as compared with six and five per cent in China and the US, respectively.
The new law subsumes a slew of indirect taxes at the Centre and in states. It is believed that the one-nation one-tax regime is expected to boost the rate of economic growth by about 0.5 percentage points, broaden the revenue base and cut compliance costs for firms.
Wrapping up the discussion, Finance Minister Arun Jaitley made a strong pitch for a simple tax regime, reminding the Congress that seven finance ministers of the states it rules have signed off on the provisions of the four bills as part of the GST Council.
Replying to an eight-hour long debate, he said that the tax rates will be kept at near current levels to ensure that there is no inflationary impact. He said that the aim of the GST Council is to decide everything relating to the tax structure with consensus. To the Congress' objection to the GST with multiple tax rates, he said: “If there are no multiple rates, it will become a highly regressive tax...Some goods are essential for the poor.” To illustrate his point, he said: "A BMW and hawai chappal (slippers) can't have the same tax.”
He said a delicate balance has been drawn by setting up the GST Council where the sovereignty of the Centre and the states in relation to indirect taxes have been pulled in together in a federal institution.
Explaining the Bills, the Finance Minister said that the Central GST will give powers to the Centre to levy tax after excise, service tax and additional customs duty are all subsumed. The Integrated GST will be a tax to be levied by the Centre on inter-state movement of goods and services. The states will pass the State GST law that will allow them to levy sales tax after VAT and the likes are subsumed.
Besides, the GST compensation law allows for the imposition of cess on certain luxury goods like tobacco, high-end cars and aerated drinks to create a corpus for compensating states for any loss of revenue in the first five years of GST rollout.
The fourth law introduced is on Union Territory GST like Chandigarh and Daman and Diu, which do not have assemblies. The GST Council will make recommendations to the Centre and states on tax, cess and surcharges, besides deciding on exemptions and model goods.
It has already approved four-tier tax slabs of 5, 12, 18 and 28 per cent plus an additional cess on demerit goods like luxury cars, aerated drinks and tobacco products. The work on putting various goods and services in the different slabs is slated to begin next month.
Jaitley said that tax beyond 28 per cent on luxury items will be considered as compensation tax for the next five years and the money will go to the fund from where states losing on tax will be compensated. Referring to the tax bracket of luxury goods, he said that the extra component beyond 28 per cent has been kept as cess, as keeping it as tax would have a negative impact on the consumers. Jaitley said that keeping it as tax would have resulted on some portion of the money going to devolution. "To make a compensation package of Rs 50,000, we would have to levy tax of Rs 1.72 lakh crore."
Earlier, the Opposition charged that India lost a whopping Rs 12 lakh crore due to the years of delay in implementation of GST due to stiff opposition by the BJP during the previous UPA government.
The AIADMK, the only party to walk out in August, stuck to its demand for better compensation to states like Tamil Nadu. Responding to the concerns expressed by members on bringing agriculturists within the ambit of GST, Jaitley said that the GST Bill have provided a definition for agriculturists for the purpose of exemption from registration. He said that most of the agricultural produce would continue to be zero rated and there should be "no confusion" about it.
As regards Jammu and Kashmir, the Finance Minister said the law passed by Parliament will not apply to the state, which will have to legislate its own law and integrate with the GST regime.
Prime Minister Narendra Modi hailed the passage of GST supplementary Bills by the Lok Sabha. "Congratulations to all the countrymen over the passage of the GST Bills. New Year, New Law, New Bharat," he said in a tweet in Hindi.
THE 4 BILLS
- The Central Goods and Services Tax Bill, 2017
- The Integrated Goods and Services Tax Bill, 2017
- The Union Territory Goods and Services Tax Bill, 2017
- The Goods and Services Tax (Compensation to States) Bill, 2017
Highlights
- Commodities like food items will have zero tax
- Decision to bring real estate in GST ambit will be taken within one year of the rollout of the new indirect tax regime
- GST Bill seeks to replace various tax laws like Central Excise Law and VAT Law
- Tax rates for each CGST and SGST will not exceed 20%.
- Tax rate of IGST will not exceed 40%. In addition, a cess will be levied on certain goods and services to compensate states for revenue loss.
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