GST will reduce tax evasion, improve business environment

Implementation of the Goods and Services Tax (GST) will reduce tax evasion and improve ease of doing business by engendering a common market throughout the country, Finance Minister Arun Jaitley said today as he moved the modified constitution amendment bill in the lok Sabha.

"GST will ensure one tax in the entire country. It will result in seamless transfer of goods and services in the country...This is a major indirect tax reform which will in long run will be in interest of the country," he said, adding Centre has addressed concerns of all the states.

The lok Sabha, which had already passed the GST Constitution Amendment Bill in May 2015, took it up today again to approve the modifications made in it by the Rajya Sabha last week. The government had moved six official amendments, including scrapping of 1 per cent additional tax.

On the vexed question of GST rate which may have implications for inflation, Jaitley said it would be decided by the GST council, which will comprise representatives of centre and states.

As regards the issue of states giving up sovereign power to levy taxes, the minister said it is not the case, "states and the Centre will be pooling in their sovereignty together and creating a new mechanism which will take all its decision within that pooled sovereignty."

Appreciating political parties for showing unanimity in passing the bill in the Upper House, he said, "it is an important legislation and divided Parliament passing the country would not benefit the country."

The Minister further said the new tax regime will "check leakages, increase tax base for centre and states, eliminate cascading effect of tax on tax, reduce tax evasion and improve ease of doing business."

Jaitley, while moving the amendments to the GST bill cleared last week by the Rajya Sabha, said the Constitutional Amendment Bill is an enabling law. After it is approved by the state assemblies, three more laws-- Central GST, Integrated GST and State GST-- will be drafted by the GST Council.

While the CGST and IGST will have to passed by Parliament, states will have to pass their SGST law.

"Simultaneously the GST Council will work on the functional modalities for implementation such that same person is not assessed by both Centre and states," Jaitley said.

He said it was the strength of the democracy that the states and opposition parties came on board for passage for the indirect tax reform bill.

"Majority of the political parties have come forward in support of the bill. Since it will be implemented by both the Centre and states, it was necessary to build a consensus on it," the Finance Minister said.

Recalling the history of GST, he said in 2003 the Kelkar committee had suggested that structural changes should be brought about in the indirect tax regime.

After the NDA government came to power in 2014, it started discussions with the states with regard to their concerns on compensation, he said.

While the GST Bill, 2011, did not have a provision for compensation, the NDA government initially provided for compensation to the states fully for 3 years and then for staggered compensation for 2 years.

Since states still had concerns regarding compensation, Jaitley said the Centre decided to fully compensate the states for 5 years.

The GST bill, 2011 said that all decisions of the GST Council will be based on consensus but it did not specify what would consensus mean, Jaitley noted.

Upon the recommendations of the Standing Committee, it was decided that every decision of the GST Council should be passed by three-fourth majority, he added.

The states would have two-third voting right in the GST Council, while the Centre would have one-third vote and hence both Centre and states have to agree to pass a decision.