The Rajya Sabha Select Committee on the Goods Services Tax (GST) Bill has endorsed nearly all the provisions of the Bill. In its report submitted on Wednesday in the Rajya Sabha, the Committee incorporated demands of parties like the Trinamool Congress for a five-year compensation to States for revenue loss following implementation of the GST and suggested changes in clauses pertaining to compensation and levy of 1 per cent additional tax by the States on inter-State supply of goods. But the panel did not agree to several demands of the Congress, the AIADMK and the left whose members submitted dissent notes.
As per current compensation mechanism decided by the Centre, the Union Government will give 100 per cent compensation to States for the first three years of GST implementation and thereafter 75 per cent in fourth and 50 per cent in the fifth year.
On the clause relating to levy of 1 per cent additional tax by States for the first two years, the committee felt that “additional tax in its present form is likely to lead to cascading of taxes”. Hence, it “strongly” recommended that the proposed GST law should clearly define and explain the word “supply”. And this should be “all forms of supply made for consideration.”
Some members of the committee suggested deleting this clause because the Center was anyway going to provide 100 per cent compensation to States for the losses they would incur, hence there was no need to levy a “market distorting 1 per cent additional levy”.
Several stakeholders too argued that this tax was arbitrary and against spirit of the GST. The Government, however, contested this by saying that this additional 1 per cent tax is to allay fears of States and bring them on board on GST.
The Committee felt that the revenues of local bodies needed to be sustained and protected to ensure standards of local governance are maintained. For this, it suggested State Governments to take adequate measures to ensure that sufficient revenues flow to the local bodies and their resources are not adversely affected. To increase the resources of States, the Committee suggested that the “band” rate should be defined in the Act itself. The proposal would provide option to States to levy additional taxes within the band on specified goods and services to raise additional resources to meet local needs.
On taxation of petroleum products, the Committee endorsed the provisions of the GST Constitution Amendment Bill under which a decision on taxation would be taken by the GST Council. To keep a fine balance, the Centre vote share has been limited at one-third and that of States at two third. Despite a demand to reduce the Centre’s representation to one fourth, the Committee retained the provision in the Bill.
In banking sector, the committee felt that to be internationally competitive the GST rate for banking industry should be minimum.
In their dissent notes, Congress members Madhusudan Mistry, Bhalchandra Mungekar and Mani Shankar Aiyar said that the proposed legislation was heavily tilted towards Centre and wanted a cap at the GST rate so that in pursuit of higher revenues the GST Council does not go overboard. The Congress also opposed the 1 per cent additional tax terming it to be market distorted and favoured including alcohol, tobacco and electricity supply in the GST.
AIADMK member A Navaneethakrishnan in his dissent note opposed the inclusion of petroleum products in the GST and was against a GST Council saying it jeopardises autonomy of States. left members D Raja (CPI) and KN Balagopal (CPI-M) gave dissent while arguing that with the Centre having absolute say in decision making on the GST, the States will lose their financial independence and in the long run corporate will dictate the policies of even the local governments.
The Government plans to roll out the GST by April 1, 2016. The GST, which is being touted as the biggest reform in the indirect taxation since independence, would subsume levies like excise, service tax, and other local levies.
The GST Bill, which has already been passed in the lok Sabha, will now have to be taken up for passage in the Rajya Sabha. Being a Constitution Amendment Bill, the Bill has to be approved by 2/3rd members in the Rajya Sabha and here the BJP would need support of regional parties and allies as the Government is in not in majority here.