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The Cabinet Wednesday approved key changes to GST Constitutional Amendment Bill, dropping the 1 per cent additional tax on inter-state sales and providing guarantee to compensate states for any revenue loss in the first five years of rollout, as the Modi government is preparing ground to introduce the bill in the Parliament next week.
“The amendments to the GST Constitutional Amendment Bill have been cleared,” a top official said after the meeting of the Union Cabinet chaired by Modi.
The Cabinet also decided to include in the Bill that any dispute arising between states and the Centre will be adjudicated by the GST Council, which will have representation from both the Centre and states.
The Bill, in its present form, provides that the Centre will give 100 per cent compensation to states for first three years, 75 per cent and 50 per cent for the next two years.
However, the Select Committee of the Rajya Sabha had in its report recommended 100 per cent compensation for probable loss of revenue for five years. As per the amendments, the Centre will now constitutionally guarantee States any loss of revenue from the GST subsuming all indirect taxes, including VAT, in the first five years of introduction.
By doing away with the 1 per cent inter-state tax over and above the GST rate, the government has met one of the three key demands over which Opposition Congress has been blocking the Bill in the Upper House.
The other demands of including GST rate in the statute and a Supreme Court judge-headed dispute resolution body has not been accepted. It remains to be seen if meeting of its demands halfway will persuade the Congress to support the legislation.
On Tuesday, at the Empowered Committee of State Finance Ministers meeting, the crucial revenue neutral rate (RNR) of taxation as well as capping of the GST rate in the Bill did not find favour with many states. This could prove to be a hindrance, with the government looking to build consensus on the bill before introducing it in the Rajya Sabha.
“All states were of the view that the tax rates put forward by the Chief Economic Advisor are not acceptable. There was no consensus on what the rate should be. It can be 18 per cent or above that. That was the consensus,” Kerala Finance Minister Thomas Isaac told reporters after the meeting.
West Bengal Finance Minister Amit Mitra, who is the committee chairman of the panel, said it was very important to agree on the wording as the GST rate should not become a burden on the common man. He added that the existing level of trends of revenue of the union and states must also be safeguarded.
On the matter of capping the GST rate, a key demand of the Congress Party, Mitra said there was “consensus to keep the GST rate out of the Constitutional Amendment Bill”.