Finance minister Arun Jaitley will meet his state-level counterparts on Tuesday, amid signs of the Centre ironing out differences with the Congress on the proposed Goods and Services Tax (GST) Bill. The legislation has been stuck in Parliament for want of political consensus.
The participants of the meeting will discuss the changes sought by the Congress, including the key demand of capping the GST rate at 18% in the Constitution Amendment Bill itself. They will also mull over the recommendations of two separate panels, which have suggested ideal rates and other features of the new taxation system.
Though the Congress said it is waiting to hear from the Centre on its demands, there were indications that it would not block the GST bill’s passage in the Rajya Sabha – where the government is in a minority. The party is also aware that opposing the bill when all the other parties want it passed would deprive the Congress of any credit for bringing in the original legislation. “We are ready to discuss the cap in the subordinate legislation,” said Congress leader Jairam Ramesh, indicating a thaw in the party’s position.
Once adopted, the GST will dramatically alter India’s indirect tax structure by replacing a string of central and local levies such as excise, value added tax and octroi with a unified tax – stitching together a common national market.
The bill passed in the Lok Sabha in May 2015 stipulated that the rates must be decided by a GST council comprising state finance ministers, and headed by the central finance minister.
While the Centre is unlikely to agree on capping the GST rate in the Constitution Amendment Bill, it may suggest a ceiling in the “supplementary” legislations – including the state GST law, the central GST law and the integrated GST law – to be passed after the main central law is enacted. The state finance ministers are also likely raise the Congress’s two other demands – scrapping the so-called “entry tax” of 1%, and setting up a statutory grievance redress mechanism.
The government had proposed a 1% entry tax for a maximum period of two years as additional revenue for producing states.
What experts suggest
A panel under chief economic advisor Arvind Subramanian mooted a three-tier rate structure, with taxation of some essential goods at 12%, ‘demerit’ goods such as luxury cars and tobacco products at 40%, and remaining goods at a standard rate of 17-18%.
The National Institute of Public Finance and Policy, a premier research institute, favoured a standard rate in the 23-25% range if goods are taxed at three different rates. It also suggested a GST rate of 18-19% in case all goods are to be taxed in a uniform manner.