The prospects of a nationwide goods and services tax (GST) hung in the balance on Tuesday, with finance minister Arun Jaitley indicating the government’s unwillingness to specify the tax rate in the proposed law as it could “damage” the system.
“We are reaching out to them, we are willing to discuss with them because some of these suggestions may not necessarily be in the larger interest of the GST structure,” Jaitley told delegates at the annual meeting of industry association Assocham.
He termed as preposterous the Congress’s suggestion that the tax rate should be stipulated in the Constitution amendment bill as it would imply that “in a given exigency if tariff has to be altered you need a two-third majority in both houses of Parliament and it has to go to each of the states”.
Jaitley’s remarks came two days before Parliament meets for its winter session from November 26 to December 23.
The Congress wants the GST rate to be capped at 18% and specified in the bill itself.
This is a departure from the bill passed in the Lok Sabha in May, which has not specified the rate.
According to the bill, the rates were to be decided by a GST council headed by the central finance minister with state finance ministers as members.
Prime Minister Narendra Modi told investors in Singapore on Tuesday, “We are hopeful to roll out the GST regime in 2016.”
Jaitley drew the line on the extent to which the government was willing to go to roll out India’s most ambitious tax reform, aimed at stitching together a common national market by removing a web of local levies such as octroi and sales tax with a single uniform tax.
“The wisdom which dawned on my friends in the Congress party had not dawned on them when Pranab Mukherjee (as finance minister) introduced the GST (in 2011). It did not dawn on them when (the then finance minister) P Chidambaram accepted the standing committee recommendations but to come out with the preposterous suggestion that tariff must be mentioned in the Constitution document,” Jaitley said.
The finance minister said it would be “extremely unfair” if a “defective GST architecture” were to be introduced in the name of a “political compromise”.
Sources said the government, however, was willing to accede to the Congress’s demand to scrap the so-called “entry tax” of 1%.
The government had proposed a 1% entry tax for a maximum period of two years as additional revenue for producing states.
The entry tax was aimed at making GST more equitable amid fears it could potentially give more revenues to consuming states such as UP, Kerala and West Bengal compared to producing or industrialised states such as Maharashtra, Gujarat or Tamil Nadu.
The Congress, however, has pointed out such an additional levy will distort the objective of a common national tax, making the system flawed.
The 122nd Constitution amendment bill will have to be passed with two-thirds majority in both Houses of Parliament. It would also require ratification by at least half of the state assemblies.
The government was planning to implement it from April 1, 2016.
Senior NDA ministers Arun Jaitley, Venkaiah Naidu, Sushma Swaraj, Manohar Parikkar and Rajnath Singh have held discussions on the strategy for the upcoming winter session of Parliament with focus on the GST bill.
The Congress wants that an independent mechanism to redress grievances be given statutory status unlike the proposed GST council.
Parliamentary affairs minister Venkaiah Naidu hinted at further negotiations with the Congress. “Before the budget session, I had spoken to the Congress president. If required, I am ready to talk to her again,” he said.
Minister of state for finance Jayant Sinha said consultations were on. “It all depends on how the Opposition works through the set of issues and what their goals are,” Sinha told HT on Tuesday.
Congress deputy leader in the Rajya Sabha Anand Sharma demanded the government revert to the Congress on all issues about which it has reservations.
“They have to create a broad consensus and meaningfully and constructively engage with the Opposition,” Sharma said.