India moved a major step closer towards a unified goods and services tax regime across the country, with the upper house of Parliament passing the relevant Constitution amendment bill on Wednesday, in what is seen as the most radical indirect tax reform since independence.
The Constitution (One Hundred and Twenty-Second Amendment) Bill, 2014 and amendments were first declared approved by a voice vote. Following a division called by Deputy Chairperson P.J. Kurien and electronic voting, it was declared approved by a two-thirds majority.
While the AIADMK had walked out earier, 203 members present voted in favour of the main bill.
The bill will now go again to the Lok Sabha for its nod since the government had moved some amendments to get political parties, notably the Congress, on board.
The passage on Wednesday was preceded by some heated debate, with the opposition demanding that subsequent bills on the subject be brought as financial bills, as opposed to money bills, so that the upper house gets a chance to debate and vote on them.
The government only assured that it will follow the spirit of the Constitution in this regard.
The new regime — the idea for which was mooted some 13 years ago — seeks to subsume all central indirect levies like excise duty, countervailing duty and service tax, as also state taxes such as value added tax, entry tax and luxury tax, to create a single, pan-India market.
Some items, notably potable alcohol and petroleum products, will be outside its purview for now.
“This is one of the most significant tax reforms in India’s history. It was, therefore, important for building a political consensus to the extent possible,” Finance Minister Arun Jaitley said, as he initiated the debate on the bill.
“The enactment of the GST Bill will bring abut the best economic management of the country as it will empower the states and increase revenue of states and the central government. It will give a boost to the economy at this critical stage,” he added.
Following the passage by the Lok Sabha, at least 50 percent of the states will have to ratify it for it to become law. This apart, while the Centre will have have to take Parliament’s nod again for its version of the GST, states too will need to do the same, which may not be a quick process.
To reach a compromise, the government had to concede to two main demands of the Congress — scrap the proposal to levy a 1 per cent additional duty so that states get compensated for at least two years and make the dispute resolution mechanism stronger and empowered.
But the third demand — of specifying the GST rate in the bill itself was not acceded.
The Congress party, nonetheless, said this was a request that remained. “Today we may not put the rate in the Constitutional amendment bill but we will have to put it in the central bill,” said P. Chidambaram, former Finance Minister and the main speaker for the Congress during the debate.
“The empowered committee is the one which arrived at a 15.5 per cent revenue neutral rate and came to the conclusion that 18 per cent should be the appropriate GST rate. The Congress did not suggest the 18 per cent rate — 18 per cent came out of your report,” he said in the Rajya Sabha.
His reference was to the committee currently chaired by West Bengal Finance Minister Amit Mitra.
“If we charge 24-26 per cent, it will defeat the very purpose of GST. Services represent 57 per cent of India’s GDP. It will be hugely inflationary. It’ll lead to evasion,” he said. “Take the case of soft drinks, whether a rich man buys it or poor man buys it, the tax is the same.”
Jaitley said since the rate is scheduled to be decided by the GST Council, which will have the representation of all states and the central government, this matter should be left to it. “We must trust the responsibility of states towards the people,” he said.
Even though the idea of a pan-India GST was first mooted in 2003, it was seven years later that a formal bill was first introduced. But this lapsed when the United Progressive Alliance (UPA) was voted out and the Prime Minister Narendra Modi government took over.
In 2014, a recast bill was introduced in the Lok Sabha on December 19, and was passed by it five months later on May 6, 2015. The bill was then referred to a Select Committee of the Rajya Sabha for examination which submitted its Report on July 22, 2015.
Following consultations, some amendments were moved and the bill sailed through in the upper house on Wednesday after nearly eight-hour debate. The final voting ended well past 9.30 p.m.
