The Congress’s walk-out in response to the government’s attempt to move the Constitution (122nd Amendment) Bill, 2014, the enabling legislation for the goods and services tax, for discussion and passage in the Lok Sabha, seems ill-judged. The Opposition has demanded that the bill be referred to a standing committee first for more scrutiny, in spite of the fact that an earlier version of the bill, which was moved by the Congress and which lapsed after the 15th Lok Sabha was dissolved, had already been sent to a committee. The GST, which has been on the cards for about a decade, is to be rolled out on April 1, 2016. The time for the enabling constitutional amendment is now; it cannot wait much longer. In turn, the BJP, which had itself opposed the Congress legislation, will have to do the hard labour of politics to get the Opposition on board — as in the case of the insurance bill.
Opposition posturing notwithstanding, there is wide political as well as federal consensus behind the constitutional amendment, which only frames the broad contours of the proposed tax regime such as giving the states the power to tax services and the Centre, goods — the nitty gritty is to be worked out later by the GST Council created by the amendment bill. Most of the contentious Centre-state issues — such as which extant taxes are to be subsumed, which goods and services are to be exempted, the formula for the division of the integrated GST, turnover thresholds for taxation, revenue-neutral tax rates as well as the compensation mechanism for the states — are to be worked out later by the council, which will include representatives from all the states. For its part, the Centre has signalled its commitment to roll out the tax reform by laying out a credible roadmap in the budget and also raising the service tax rate.
Certainly, the constitutional amendment bill is not flawless. In order to get on board production powerhouses like Maharashtra and Gujarat, the biggest losers in the move to a consumption tax regime, the bill empowers the Centre to collect an additional tax, not exceeding 1 per cent, on the “supply of goods. in the course of inter-state trade or commerce” for “a period of two years or such other period as the GST Council may recommend” in order to compensate the states. This tax will have a cascading impact and is particularly problematic for intra-company transfers. But it is a temporary measure and it is hoped that the council will take the larger view, not extend it. For now, the important thing is to get the enabling legislation passed. It’s been stuck in the pipeline far too long.