The Rajya Sabha on August 3 passed the Constitution (122nd amendment) Bill, 2014, an enabling provision to bring in three other GST bills, and thus paving the way for “one nation, one tax.”
It was a big win for the Modi government, which was lacking a majority in Rajya Sabha, as it took over 18 months of tough negotiations with Congress to pave the way for implementation of the legislation.
Despite political headwinds, the passing of the bill clearly shows the governments’ commitment to economic reforms.
Barring the AIADMK, which staged a walkout on the plea that it violated federalism, all others, including the Congress, voted for the Bill.
The GST will replace all local and indirect taxes with a single tax. The shift to the GST regime will lead to a uniform, seamless market across the country.
The GST will have two components keeping in mind the federal structure of India: the Central GST (CGST) and the State GST (SGST).
Moving the bill for passage, finance minister Arun Jaitley said, “It will make the system more efficient and compliant by making evasion of tax difficult… and there will be no cascading effect of taxes like tax on tax, and in the final analysis will bring the rates down.”
The Congress batted for a cap on the GST, but finance minister Arun Jaitley maintained that the government will try to keep the rate “moderate”.
Finance minister Arun Jaitley successfully wriggled out of opposition’s demand to declare categorically that the three GST bills – the Central GST, the inter-state GST and state GST – will not be money bills.
Congress leader PC Chidambaram argued, “There is nothing in the Constitution that obliges him to bring it as a money bill…In the interest of the country, please bring it as a financial bill.”
Jaitley also did not assure the Congress to keep the cap on GST rate at 18 per cent but said that they would try keep at the minimum as otherwise it may add to inflation. The Centre also agreed to do away with 1 per cent additional tax.
The next big step would not be setting up of the GST council as the entity will determine the GST rate and institute a dispute resolution mechanism.
Being a Constitution amendment that involves the states, at least 50 per cent of them also have to ratify it. It could delay the process since states could have their own set of issues and worries, which the Empowered Committee and the government would have to address. The BJP and its allies are in power in 13 out of 29 states.
The parliament will now have to pass relevant bills for a Central GST and an integrated GST, while the states will have to enact their own legislations for a State GST.
Though it will be a tough task to maintain April 1, 2017, as the rollout date, the government must reach a consensus on the rate which does not hurt consumers but also protects the revenue needs of states and is also non-inflationary. The US India Business Council has termed the passage of GST bill by the Indian Parliament as a “game-changer”, saying it is a significant milestone in efforts to improve the country’s ranking in World Bank’s ease of doing business index.