Why is Arun Jaitley keen on bypassing Standing Committee for GST Bill?

Amid the political plot surrounding the passage of the Constitution Amendment Bill for Goods and Services Tax (GST), which is likely to be taken up in the parliament this week, finance minister Arun Jaitley looks to be hesitant to refer it to the Standing Committee for the fear and potential danger of it coming to a naught with even a slight change.

A source, who has been closely watching the events unfolding in the parliament, says that after going through the whole process for over a decade to bring the Bill to the stage at which it is today, the minister did not want to jeopardise it by sending it back to the committee.

"Technically, there is no need for the Bill to be referred back to the Standing Committee since the empowered committee of state finance ministers has already vetted it. The government does not want to send it again to the committee as it would delay the process if the committee were to suggest any alterations in the three major changes made at the behest of states," he said.

Any changes in the latest three major additions in the Bill could lead to some or the other state pulling back support and derailing it.

There are three key differences between the Bill drafted in 2011 and its 2014 version. The first one relating to 1% origin tax, which is non-creditable; the second is a rate band between which the indirect tax can be levied by states instead of having a single tax rate as suggested earlier, and the third dilutes the veto power of the Centre to balance it with the states.

"All the three have been done based on the feedback from states and is in their favour. The other minor changes that have been made are more for clarification and establishing various concepts clearly," said a senior government official, who did not want to be named.

He said the minister had already made it clear on the floor of the house that the standing committee had already gone through it in detail when the Bill was sent to it in 2011.

"The committee came back with its recommendations in 2013, which have been included in the Bill. Changes that have been made after that are beneficial for the state," said the government official.

According to him, declared goods have also been included. However, there were no major differences on declared goods.

Declared goods are goods declared under Section 14 of Central Sales Tax (CST) Act, 1956 of special importance in interstate trade and commerce. It includes items like cotton, iron and steel (not finished goods), cement, petroleum intermediaries, cereals, etc. Items are brought under this group so that there is no inflationary impact due to repetition of indirect taxes on the final products, for which raw materials are sourced from different states during the manufacturing process.

Amit Kumar Sarkar, partner, Grant Thornton India LLP, said there has already been extensive discussion on declared goods in the context of GST.

"It (discussion on GST) has been done and dusted and everything has been clarified and there is no confusion over it," he said.

Political observers said the Bill was stalled more for political reasons than any fundamental flaw in it.

"Congress is giving back to BJP in the same coin by blocking and opposing bills in the Parliament," said a political analyst, who did not want to be named.

He expects a bargain between Congress and BJP over the land acquisition Bill and Constitution Amendment Bill for GST for political mileage.

"The Congress is forcing the BJP to dilute the land acquisition Bill, and take credit for it, and then it would let the BJP pass the GST Bill and let it take credit for it," he said.

Divyesh Lapsiwala, tax partner, EY, said passage of Constitution Amendment Bill would be a major reform that would result in leapfrogging of economic growth. Jaitley has said it would add 1-2% to the GDP growth rate.

"It would be a shot in the arm for ease of doing business and reducing, if not eliminating, the cascading impact of indirect tax on goods and services," he said.

The NDA government is looking to pass the Bill in the current parliament session and roll out GST by April, 2016. Last Wednesday, it was pushed to this week for being taken up for discussion in the House.