Constitutional Amendment Bill for GST passed by Lok Sabha today
Today (6 May 2015), amidst extensive debate and deliberations, the Lok Sabha (India's lower house of Parliament) passed the 122nd Constitutional Amendment Bill, 2014 (CAB) with the required majority. The Finance Minister (FM), Arun Jaitley, spoke in the Lok Sabha to address the questions and issues raised on the Goods and Services Tax (GST) - the biggest indirect tax reform in India post independence.
Requesting the members to avoid further delays in passing the bill, the FM clarified that Clause 21 of the GST Bill (which grants powers to the President) does not remove Parliamentary powers to amend the Constitution; it simply gives the President powers to remove difficulties arising due to the implementation of the Bill.
To address concerns of the states, the FM said that the Centre has allowed states to levy a 1% additional tax on inter-state trade for a period of two years. In addition, he clarified that a sub-group of the empowered committee is appointed to look into how to prevent this additional 1% tax from having a cascading effect.
The FM also stated that losses incurred by local bodies on account of removal of an entry tax in lieu of octroi, will be taken care of by way of a share in the service tax revenue for the states. Previously, this was going entirely to the central government.
Furthermore, the Centre will bear the losses of the states caused due to the implementation of GST up to five years. However, the FM added that he did not foresee any state losing revenue after the GST rollout. He clarified that the word "may" used in Clause 19 of the Bill, which provides compensation to states, should be interpreted as shall" as the Centre is obligated to fulfil its commitments.
The FM also clarified that petroleum, though forming part of the GST Bill, should be taxed only once the decision of the GST Council is made. Also, potable alcohol should be kept outside the purview of GST.
Emphasising the benefits of GST, the FM clarified that it will reduce prices in the long run and boost economic growth. The proposed revenue neutral rate of 27% is being prescribed by "an organisation"; however, the intention is to introduce GST at a "diluted rate".
Following the FM's speech, although members of the Congress walked out on the point that the Bill should be sent to the Standing Committee, the Bill was passed with the required majority.
With the Lok Sabha clearing the GST Bill, it will now move to the Rajya Sabha (the upper house of Parliament). It will be interesting to see how the current NDA government overcomes the hurdle of getting the Bill passed in the Rajya Sabha, where it does not have a majority. Moreover, to become a law, the CAB will have to be approved by more than half the states.
Nevertheless, with only 11 months until the implementation deadline, the passing of the Bill in the Lok Sabha has brought the introduction of GST in India closer to reality.
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