GST Bill: To get Congress nod for passage, Modi govt makes key changes

GST Bill: Additional 1% tax gone but rate not to be fixed in Constitution.

By: ENS Economic Bureau | New Delhi | Updated: July 28, 2016 4:27:11 pm
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To bring the Congress on board the Goods and Services Tax (GST) reform, the government Wednesday cleared changes in the Constitutional Amendment Bill including doing away with the additional 1 per cent tax by producing states and compensating all states for any revenue loss in the first five years post the GST rollout.

Government sources said the Cabinet, headed by Prime Minister Narendra Modi, decided not to accede to the main Congress demand of specifying the GST rate in the Constitution itself. It is likely to be part of the GST Bill that will be legislated separately by both the Centre and states.

The move by the Centre to step up the compensation package comes in the wake of a concerted demand by states at Tuesday’s meeting of the empowered committee of state finance ministers, where a majority of states sought changes in the wording of the Bill to effectively guarantee full compensation for five years against any loss of revenue.

Sources said Finance Minister Arun Jaitley had a short discussion Wednesday with Congress Deputy Leader in Rajya Sabha Anand Sharma, and will likely offer Thursday a draft of the changes to the Constitutional Amendment Bill to senior Congress leaders. A meeting with CPM’s Sitaram Yechury and leaders of some other political parties is also slated.

The Congress demand for further strengthening of the grievance redressal mechanism was also discussed by the Cabinet, government sources said. The Opposition party wanted ‘stronger’ language in Article 279A (11) of the Bill that relates to the mechanism that the Goods and Services Tax Council would adopt for dispute resolution.

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“The party will go through the draft with a fine-tooth comb tomorrow. We are inching towards a resolution,” a Congress leader told The Indian Express.

The amendments were taken up by the Cabinet after Jaitley assured the state finance ministers to include in the Bill the mechanism of compensating states for all the loss of revenue for five years.

While the select committee of Rajya Sabha had in its report recommended 100 per cent compensation for probable loss of revenue for five years, the Bill 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.

With the amendments in place, the Centre will constitutionally guarantee the states against any revenue loss from the transition to GST on account of subsuming of all indirect levies in the first five years of the introduction of the new tax regime. Hiking the compensation formula is likely to impact the financials of the Union government in the fourth and fifth years post the GST rollout.

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The government will likely move the amendments to the Bill in Rajya Sabha after Jaitley meets the leaders of the Congress and other parties, including the Left, in the Upper House to forge a consensus. Once it is cleared in Rajya Sabha, the government will table the amended Bill again in Lok Sabha.

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