Even as it works overtime to bring the Congress Party and other members of the Opposition on board for ensuring the passage of the Goods and Services Tax (GST) legislation, there are indications that both the government and the Opposition are inclined to changing their stance on the issue, something that may ultimately pave the way for what is touted as the country’s biggest tax reform since 1947.
There are sceptics, though, given the series of flip-flops from both the BJP and Congress Party on the GST issue, a journey that commenced way back in 2007-08 under the UPA-I government. The passage of the Bill is vital for the roll-out of the proposed indirect tax reform as it will empower the Centre to tax goods beyond factory gate, while it will empower states to tax services, hitherto taxed only by the Centre. This requires a two-thirds majority in both the Houses of Parliament and ratification by 50 per cent of states.
The Congress, which introduced the Constitution (115th Amendment) Bill, 2011, could not secure a passage despite bringing in four drafts of the Bill for building consensus. The main Opposition at that time came from Gujarat, Madhya Pradesh, Karnataka, Chhattisgarh, and Uttarakhand — all ruled by the BJP along with Tamil Nadu, then ruled by DMK, the UPA government’s ally. These states argued that the Bill tried to snatch away their fiscal autonomy and was undemocratic in nature. Despite the conciliatory overtures of the then finance minister Pranab Mukherjee, who in a master stroke roped in BJP’s senior leader Sushil Modi as empowered committee’s chief to get BJP-ruled states on board, the opposing states refused to budge from their stand.
Cut to 2014. The NDA government, voted to power with a massive mandate, announced that GST would on be its priority list. It introduced Constitution (122nd Amendment) Bill, 2014, in the Lok Sabha, which passed the Bill.
The Bill was similar to the one proposed by the UPA except that it added an additional provision of providing 1 per cent additional levy to manufacturing states like Gujarat. Also, instead of consensus, the Bill proposed that decisions in the proposed GST Council would be taken by a majority of not less than three-fourths of the weighted votes of the members present and voting.
However, now the Congress has opposed the Bill. The party, in an eight-point dissent to Rajya Sabha’s select committee, has sought the inclusion of the 18 per cent GST rate in the Constitution, along with withdrawing the additional levy and establishment of dispute settlement authority. The Centre has already indicated its willingness “to yield on the demand of removing the additional one per cent levy”, as demonstrated by the report of a government-appointed committee, which has favoured doing away with this levy.
The committee has also arrived at a GST revenue-neutral rate of 15-15.5 per cent and a standard rate of 17-18 per cent, effectively dealing with the 18 per cent cap sought by the Congress party. However, the Centre is not in favour of placing the GST rates in the Constitution while the negotiations are still on with regards to establishment of dispute settlement authority.
The change in the Congress’s position is contrary to what it had proposed in its Bill in 2011. Now, it is seeking to achieve what it could not manage when it was in the power. It wants petroleum, electricity and alcohol under the GST ambit while it wants the Centre to put in place a dispute settlement authority to settle disputes between states and the Centre.
From a historical perspective, after the announcement of overhauling the indirect tax system was made by the then finance minister P Chidambaram, it was decided to implement the new system from April 1, 2010. The aim was to do away with the cascading of various Central and state taxes and make India one common market. The deadline, however, was missed as the Empowered Committee of State Finance Ministers could not achieve any consensus on the three draft bills prepared by the UPA for amending the Constitution.
While the first draft, in which the UPA had suggested setting up a GST council with the Union finance minister as its head, was out-rightly rejected by states on the grounds that it would tantamount to taking away their fiscal autonomy, the second draft, which proposed that the decisions by the council would be taken by consensus of both states and the Centre, was also rejected.
In the third draft, the Centre proposed the creation of a GST council through an Act of Parliament, which again could not pass muster with states.
In the fourth and final draft, it was proposed that while the GST council would be formed with presidential order, decisions of the council would be taken through consensus. The Constitution (115th Amendment) Bill, 2011, proposed every decision of the council was to be taken with the consensus of all the members present at the meeting. It had also proposed a GST Dispute Resolution Authority. However, following the opposition from states the clause was later dropped from the Bill. The Bill had also kept petroleum, alcohol, natural gas, diesel and ATF out of the GST ambit.
An official from Andhra Pradesh said that while the rates proposed by the government-appointed committee is too low for them, that is a question to be dealt only later “as the prime issue is of passage of the Bill”. The official said that with Andhra Pradesh being an agrarian and revenue-deficit state, “we will have to rework out estimations. We are concerned and will raise the issue in the EC meeting”.
Similar views were echoed by officials from Uttar Pradesh and Bihar who said that the rates are secondary to the political establishments who “are right now weighing whether to support the Bill in the Rajya Sabha”.
As the Congress plays the truant, states are concerned with the low rates suggested by the Centre-appointed committee. Both these issues are likely to ensure that the chill of the Winter session is not going away anytime soon.
How the bill is placed
In Budget 2007-08, the then finance minister P Chidambaram announced that ambitious indirect tax reform — Goods and Services Tax (GST) — will be implemented from April 1, 2010. However, after nine years and several missed deadlines, the Bill is still languishing due to changing positions of various states and political parties. We take a quick look at the important developments since then:
* Empowered Committee of State Finance Ministers under Asim Dasgupta, the then finance minister of West Bengal, spearheaded the work on the new indirect tax regime
* The new system envisioned doing away with the cascading of various Central and state taxes and making the country one common market
* Amendments would give powers to the states to tax services while it would empower the Centre to tax goods beyond the factory gate
* The UPA introduced four drafts, and introduced the Constitution amendment Bill in 2011. However, none of the drafts and the Bill could get states on board
* The main opposition came mostly from BJP-ruled states like Madhya Pradesh, Gujarat, Chhattisgarh and Karnataka along with Tamil Nadu, ruled by UPA’s ally DMK.
* Another deadline of April 1, 2012, was announced. However, Opposition-ruled states refused to give up their demands of fiscal autonomy and issues like exclusion of alcohol and petroleum from the GST, leading to missing the second deadline as well.
* The NDA-led government in 2014 is voted to power with a massive majority. It sets a new deadline of April 1, 2016.
* A revised Bill is introduced in December 2014, putting in provisions like 1 per cent additional levy for manufacturing states.
* The Bill was passed in the Lok Sabha on May 6, 2015, where the government has majority
* However, the Congress now plays the hard ball and issues a dissent note demanding a cap of 18 per cent on GST rate in the Constitution amendment Bill. It also wants the additional levy for manufacturing states to be done away with
* The NDA, however, questions the rationale behind the demand, saying that the Bill has largely the proposal of the UPA
* The Bill has failed to secure a passage in the Rajya Sabha so far
* The Bill is likely to be introduced in the Upper House in the ongoing Winter session and hectic parleys are on between the government and the Congress to negotiate a deal for securing its passage.