Compensate states on revenue loss for 5 years: Rajya sabha panel on GST Bill

Select committee also makes a case for lower GST rate for the banking industry to maintain the competitiveness of the industry globally

By: ENS Economic Bureau | New Delhi | Updated: July 23, 2015 7:42 am
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The select committee of the Rajya Sabha has overwhelmingly supported the Constitution (122nd Amendment) Bill, 2014, vital for implementation of the goods and services tax (GST), endorsing all of its provisions even as it raised concerns that the additional one per cent provided for the manufacturing states will lead to cascading of taxes.

In its report submitted to the House, the committee has endorsed all the provisions of the Bill while recommending a liberal compensation package for possible revenue losses to the states for five years.

In the Bill, the Centre has proposed 100 per cent compensation for first three years, 75 per cent and 50 per cent for the next two years. However, the committee has recommended 100 per cent compensation for probable loss of revenue for five years.

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The committee said, “We feel that the provision of 1 per cent additional tax in its present form is likely to lead to cascading of taxes. Therefore, the committee strongly recommends that in the concerned GST law, an explanation should be given that for the purpose of clause 18, the word supply would mean all forms of supply made for a consideration”.

According to the Bill, all the manufacturing states have been provided one per cent additional tax for a period of two years over and above the GST rates to make up for their losses as the GST would be a destination-based tax and not origin-based. Earlier, the non-manufacturing states had objected to the additional one per cent levy saying it will reduce their share from the inter-state GST.

The committee also made a case for lower GST rate for the banking industry so as to maintain the competitiveness of the industry globally. “We are of the considered view that if the GST rate is more than the service tax rate of 14 per cent, the increase in the tax rate will further increase the cost of banking services. This results into the cost of doing business to be much higher in India as compared to other competing countries,” it said.

The committee, headed by BJP’s Bhupender Yadav, has further recommended that the state governments should take adequate measures to ensure that revenue flow to local bodies is not adversely affected.

However, the report is marked by dissent notes from the Congress, AIADMK and the Left parties, which have said that the Bill should provide for 18 per cent GST rate in the Bill itself while changing the voting rights of the Centre from one-third to one-fourth.

The Bill, already approved by Lok Sabha, will be taken up for passage in the Upper House. It has to be approved by two-third of the members in the Rajya Sabha and ratified by 50 per cent of the states for its passage.

Revenue secretary Shaktikanta Das said that the Centre is taking all steps necessary to meet the April 1, 2016, deadline while “effort would be to have reasonable rate of GST so that GST experience is a successful experience for the whole country.” The committee has also suggested that the “band” rate should be defined in the Act itself. The band has been provided so that states can levy additional taxes within the band on specified goods and services to raise additional resources to meet local needs.

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