State finance ministers agreeing with the Centre to keep the cap on the GST rate out of the constitution (amendment) bill comes as a setback to the Congress, which has been holding up the crucial tax reform in the Rajya Sabha.
At a meeting of the empowered committee of state finance ministers called by the Centre on Tuesday to discuss the goods and services tax, the participants may have differed on some issues but the two sides agreed on broad principles to fix the tax rate.
The Congress already stands isolated with regional parties such as the Trinamool Congress, Janata Dal (United), Samajwadi Party and the Bahujan Samaj Party extending their support to the bill.
Once passed, the legislation will set the ball rolling for the GST that 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 single unified tax, stitching a common national market.
Having mooted the GST in 2009, the Congress has been demanding the rate be capped at 18% in the amendment bill and scrapping of an additional 1% tax designed to compensate manufacturing states that fear losing out on revenue.
The opposition party also wants an independent mechanism to resolve revenue-sharing disputes between states. The ministers agreed to scrap the entry tax but had divergent views on the other two demands raised by the Congress.
There are two views in the party on what has been billed as the country’s biggest tax reform. A section feels the Congress should not be seen as stalling the reforms process and should support the bill given that the government, too, has softened its stand.
Leaders belonging to this section argue it is important to keep the opposition unified despite attempts by the ruling side to create divisions in the rival camp. “Due to the larger opposition unity, the government was forced to withdraw its land bill. This concord cannot be jeopardised by intransigence on one issue,” a Congress leader said.
But, the other section favours hardened approach -- the Congress should pay back the BJP in the same coin. “They stalled the country’s progress for years and still managed to win the confidence of people. At the end of the day, it is the public perception that matters in politics these days,” a senior party leader said.
It was the BJP that opposed the GST and leading the charge was the then Gujarat chief minister and now Prime Minister Narendra Modi, he said, adding “every new initiatives and policy change proposals of the UPA government were opposed by the BJP”.
He and other leaders cited the insurance and pension bills, saying the “government took credit for the passage of these legislation which could not have been possible” without the Congress’ support.
West Bengal finance minister Amit Mitra, who is the chairman of the empowered committee of state finance ministers on GST, said Union finance minister Arun Jaitley would explain to the Congress that the tax rate wouldn’t come in the constitutional amendment bill but it could be there in the GST bill.
The supplementary legislation — the GST bill -- may specify a bracket within which the rates should ideally be maintained. It is an enabling legislation necessary for rolling out the new tax system.
For the record, the Congress said it would respond only after the new proposals are sent to it. “Let them come back to us, we will have internal discussions and then formulate our stand,” said leader of the opposition Ghulam Nabi Azad.
The bill, passed in the Lok Sabha in May 2015, says the rates will be decided by a GST council headed by the Union finance minister with state ministers as members.
The government has been arguing that a cap on the GST rate in the amendment bill will make the system rigid. For any change in rates, the Constitution will have to be amended that requires two-thirds majority in Parliament and approval of at least half of the state assemblies.
The Congress last week softened its stand on the rate cap and is unlikely to insist on it being made part of the amendment bill.