India moved one step closer to adopting the historic Goods and Services Tax (GST) regime with the Rajya Sabha, on Wednesday, passing the 122nd constitutional amendment with full majority. This sets the stage for the start of the biggest tax reform India has seen post independence. The constitutional amendment is, however, only the beginning of a long process of rolling out the GST in Asia’s third largest economy. The NDA-government has set a deadline of 1 April, 2017 for the final roll out.
The NDA government will have to pass supporting legislations, the Central and interstate GST Bills and majority state governments will have to ratify the Bill post that. The government has to formulate the GST council that will decide the rate structure. The Congress, has insisted that the GST should be presented as a finance Bill not a money Bill, so that it will demand a discussion in the house.
Jaitley has so far refused to commit to this demand and has only said that he will go by the constitution. Besides P Chidambaram, other Congress leaders including Anand Sharma, Kapil Sibal and Gulam Nabi Azad too have asked the government to make sure the GST Bill comes as a finance Bill.
The issue of final GST standard rate is another key puzzle the government will have to work out. The Congress wants the rate to be capped at 18 percent in the GST Bill, not in the Constitution. But the government hasn’t yet committed on this. Jaitley, however said “the objective” is to bring down this rate, but the final figure will have to be worked out.
“I share your objective that rate has to be low,” Jaitley said, adding its more of an arithmetic exercise. Jaitley also called upon the opposition leaders not to make GST a Congress-BJP issue.
No consensus yet on Central, interstate GST?
Anand Sharma, senior Congress leader and a key Congress negotiator on GST, said there is no consensus yet with BJP on separate GST Bills, signaling the continuing uncertainty on agreement on the finer details of the Bill. Sharma sought more clarity on central GST, integrated GST and state GSTs and reminded the NDA-government the need for including the 18 per cent cap in the GST Bill and the need for a strong dispute resolution mechanism.
Sharma too repeated the logic of seeking 18 percent rate cap saying the Congress drew the figure from CEA Arvind Subramanian’s recommendations. Here, again, pressure mounts on the BJP on the rate-front. The task on finalising a rate will be difficult considering that many states have demanded a GST standard rate above 20 percent (as indicated by Kerala finance minister Thomas Isaac). Besides, Sharma also seeks clarity on the items that will be excluded from the Central and state list. Sharma makes a pitch for inclusion of petroleum and alcohol in the GST list. The key take away from the Jaitley’s response in the House is that the BJP and the NDA-government are willing to settle for a “reasonable” rate, leaving scope for consensus. But, the question is whether Jaitley’s explanation on rates will help to take Congress party into confidence.
States raise concern on revenue loss
Jaitley also sought to address the concerns on the impact of state’s fiscal autonomy, saying the idea is to share power with the states not take away power. D Raja, senior leader of CPI, had raised the much debated issue of fiscal federalism, the longstanding concern of left parties in the context of uniform tax regime. This is a question the Modi government will have to face increasingly in the coming days as the government progresses on the implementation of the landmark reform. “States must have fiscal autonomy.
Once the GST regime subsumes all state level taxes including Octroi, the states and local bodies will have to wait for assistance, which, comes from Centre. Here too, the Centre has a hard task to convince states like Maharashtra about the continuation of adequate funds to the states in the GST regime.