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GST Bill in Parliament soon, broad consensus among states: FM Arun Jaitley
April, 24th 2015

The government is set to move the Goods and Services Tax (GST) Bill for passage soon even as some states raised issues over compensation, making a determined push toward the much delayed indirect tax reform that it plans to roll out from April 1, 2016.

"In view of the near unanimous support of states, that it is going to be a win-win situation for all, we will go ahead with the Constitution amendment in the current session of Parliament," Finance Minister Arun Jaitley said on Wednesday after a meeting with the members of the empowered committee of state finance ministers.

The government will give a notice to Lok Sabha for the bill to be taken up soon, the minister told the media after a meeting with finance ministers of 18 states even as Tamil Nadu struck a discordant note.

The empowered committee chairman and Kerala finance minister KM Mani said there was broad consensus on the bill. "There is general consensus regarding GST implementation. Most of the states welcome it because there is only advantage in passing the GST bill," he said.

Jaitley said he was "quite optimistic" about the April 1, 2016 target. A constitutional amendment is needed to facilitate GST as states currently do not have powers to tax services while the Centre cannot levy sales tax. GST is a combined levy that will replace most of the indirect taxes levied by the states.

The Constitution will have to be amended also to give concurrent taxing powers to the Centre and the states to make laws for levying goods and services tax on every transaction of supply of goods or services or both.

The GST is expected to add 1-2 per cent to the GDP by creating a national market for goods and removing distortions caused by multiple indirect taxes levied by the Centre, states and local bodies.

First proposed by the erstwhile UPA government, the tax was to be rolled out from April 1, 2010 but resistance on the part of many states that feared a loss of revenue stalled this reform.

Experts are hopeful the chances are better this time.

GST Bill in Parliament soon, broad consensus among states: FM Arun Jaitley

The constitutional amendment bill was introduced in the Lok Sabha in December 2014.

The bill has a number of provisions to provide comfort to the states. Tobacco and alcohol have been kept out from the bill, precluding chances of the Centre bringing them under the GST at a later date through executive process. The Centre has also committed to states that they will be compensated for revenue loss for five years.

The bill requires the support of two-third members of each House present and voting as it is a constitutional amendment bill. Subsequently, half of the states assemblies will have to also ratify it as it affects the articles dealing with states.

"We see no obstacles that will interfere with the April 1, 2016 timeline for GST," Minister of State for Finance Jayant Sinha said. "We are trying our best to work up to an endeavour where, with the support of the IT bacbone which has been created, we try and maintain the target date of April 1, 2016. We are quite optimistic about that target," he added. Prashant Deshpande, senior director, Deloitte in India, said, "The Centre and the states working closely to arrive at consensus on the GST amendment bill augurs well for the passage of the bill in the current session of Parliament."

States raise concerns

At the meeting on Wednesday, Tamil Nadu said all issues should be settled before the constitutional amendment bill is passed."The current proposal of the Centre to introduce a constitutional amendment bill on GST and then to evolve a consensus on various aspects of GST, especially the actual tax rates and tax bands, through the GST Council is not acceptable to us," said Tamil Nadu's minister for commercial taxes and registration MC Sampath.

He added, "Broad consensus on the critical issues should be evolved on these critical issues through the empowered committee before the enactment of the bill is taken up."

Some states want to be compensated for 10 years or beyond for the revenue loss, Sampath said, while manufacturing states like Maharashtra and Gujarat sought 2 per cent additional tax over the state GST.

The revenue neutral rate, the GST tax rate at which there is no revenue loss to either states or the Centre, needs to be fixed. It was pegged at 27 per cent but needs to be recalculated after some goods were kept out of the GST. States have also got power to levy 1 per cent extra tax for the first two years.

The GST will subsume central excise, service tax, state VAT, entertainment tax, octroi, entry tax, luxury tax and purchase tax.

Tamil Nadu wants full compensation for five years of tax loss and petroleum products totally out of GST. The current bill provides for declining compensation over five years and includes petroleum but the exact date will be decided later.

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