GST Bill passed in Lok Sabha: Modi’s peace talks with Congress crucial as reform has long way to go

The question of passage of Goods and Services Tax (GST) constitutional amendment in the Lok Sabha (LS) was always largely a non-event for the BJP given its majority in the house, unlike in Rajya Sabha, where it is at the mercy of its political rival, the Congress party. The Lok Sabha passed the GST amendment bill unanimously. But what was interesting to note on Monday was the tone of the speech made by Prime Minister Narendra Modi. The PM talked about peace and consensus in front of a combative opposition. Modi described the headway made on GST as a victory for all rather than a political win for BJP.

“GST can't be seen as a victory of a party or government, it is victory for democratic ethos of India and a victory for everyone,” Modi said. The PM promised freedom from tax terrorism to Indian corporations once the GST is implemented. He used some catchy one-liners, assuring everyone that the reform will see to it that "Consumer is the King" and GST meant "Great step towards transformation and transparency". The PM thanked all political parties for joining hands on GST and said any argument on who should take credit on the landmark tax reform is not warranted in this context.

 GST Bill passed in Lok Sabha: Modi’s peace talks with Congress crucial as reform has long way to go

Prime Minister Narendra Modi speaks in the Lok Sabha in New Delhi on Monday during the ongoing monsoon session. PTI

During the course of his speech, Modi cited the complex ups and downs that the governments had to undergo on the way to arriving at a uniform tax regime, one from which the poor too will benefit. Modi even spoke about how the government and the Reserve Bank of India fought price rise by jointly proceeding on the four percent (two percent plus or minus) consumer inflation target till 2021.

“The biggest strength of the GST regime is technology,” Modi said, adding that with the use of real time data, it can lead to a more efficient system. The PM also listed the difficulties in the existing multi-tax regime and the benefits a uniform tax rate can offer to the nation. Besides, the GST regime can also address issues of corruption and tax evasion, thus helping to broaden the tax base, Modi said.

It isn’t too difficult to understand Modi’s consensus tone on GST and crediting the Opposition too for the success on the reform. The BJP government has a long road to travel in the coming days and it needs the support of the Congress and state governments. Now that the Lok Sabha has passed the GST amendment bill, the Parliament needs to pass two more supporting legislations —Central GST and integrated GST Bill and the BJP needs Congress’ support if the GST Bill is presented in the form of a Finance Bill and not a Money Bill.

If it is a Money Bill, then the Congress’ support will not be required. That's why Congress and other opposition parties have strongly demanded that the government present the GST Bill as a Finance Bill. On Monday too, Congress leaders such as Mallikarjun Kharge highlighted this demand. After that, at least 16 state assemblies will have to pass the state GST Bills, before it reaches the implementation stage. Hence, consensus is a must. But what must complicate the issue for the Modi government is the issue of standard GST rate.

The Congress still maintains the demand for 18 percent GST rate in the Bill, while most state governments have demanded a rate above 20 percent. States are worried that they will have to take a huge hit on their revenues if they settle for a lower GST rate. But the Congress is highlighting the argument that the Modi government’s chief economic advisor, Arvind Subramanian, had proposed that standard GST rate should be 18 percent. Subramanian had presented a standard rate of 17-19 percent, with a three-tier structure. Though the government has promised to fully compensate the losses of states for five years, states are nervous about revenue loss and hence want a higher rate. Congress wants to have a say in the GST issue till the last moment and hence is being stubborn about the rate issue.

On Wednesday, Rajya Sabha had passed the 122nd constitutional amendment with full majority, setting in motion the process for the start of the biggest tax reform India has seen post independence. The NDA-government has set a deadline of 1 April, 2017 for the final roll out. Jaitley has so far refused to commit to the Congress’ demand on Finance Bill saying he can only go by the Constitution. Congress is still keeping the BJP on its toes on the final roll out of the Bill saying there is no consensus yet with BJP on separate GST Bills, signalling some uncertainty on the finer details of the Bill.

Once passed, the GST will subsume several state level levies including Octroi, excise duty etc and is expected to broaden the tax base adding a few percentage points to GDP growth. In an earlier article, Firstpost had argued that a standard GST rate of about 20 percent makes sense for all involved to begin with. A rate below that could break the back of state exchequers.

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Updated Date: Aug 08, 2016 20:08:50 IST