Also Read- GST Bill Debate- 4 GST Bills get Lok Sabha approval

Lok Sabha passes 4 key GST bills, India inches closer to July rollout of tax reform

India’s plans to rollout GST from July 1

The Lok Sabha on March 29 Wednesday passed four crucial legislations to introduce a countrywide Goods and Services Tax (GST) bringing India closer to a unified tax regime.

The Lok Sabha passed the Central GST Bill, 2017 (CGST Bill), Integrated GST Bill, 2017 (IGST Bill), Union Territory GST Bill, 2017 (UTGST Bill) and the GST (Compensation to the States) Bill 2017 after more than eight hours of debate.

The passage of the Bills marks a big step forward in India’s plans to rollout GST from July 1.

The fifth law — SGST Bill — will be taken by the state governments through their cabinets to the respective state assemblies.

Also Read- GST Bill Debate- 4 GST Bills get Lok Sabha approval

“The GST Council is India’s federal decision making authority,” Finance Minister Arun Jaitley said while replying to the marathon discussion in the Parliament’s Lower House.

Jaitley said that Council, headed by the Central finance minister, has been given powers to make recommendations on the model laws.

The Finance Minister allayed concerns raised by Congress leader Veerappa Moily on potential arbitrariness about the GST Council to fix rates, bypassing Parliament and state legislatures.

Jaitley said that Article 265 of the Constitution clearly states that no tax shall be levied without authority of law, while Article 269 (A) states that rates will be recommended by the council. Under 246 (a), legislature or Parliament to frame laws

“The authority of law that Article 265 talks about are laws under Article 246 (a) that Parliament or state legislatures will frame on the recommendations of the GST Council,” he said.

GST, billed as independent India’s biggest reform initiative, promises to stitch together a common national market by consolidating a web of local and central taxes into a single levy.

Under GST, the states and the Centre will collect identical rates of taxes on goods and services. For instance, if 18 percent is the GST rate on a good, the states and the Centre will get 9 percent each called the CGST and SGST rates.

The Centre will also levy and collect the Integrated Goods and Services Tax (IGST) on all inter-state supply of goods and services.

Jaitley came out strongly in defence of the Centre’s multiple GST rate proposal arguing that such a structure was inevitable as diverse products like big cars and bathroom slippers cannot be taxed at the same rate.

Also Read- Comparison between VAT & GST

“It is not possible to have one single rate,” he said. “BMS and hawai chappals cannot be taxed at the same rate,” he said. “Different items used by different segments of society have to be taxed differently. Otherwise the GST would be regressive”.

Around 50 percent of the items in the retail inflation basket, primarily food items, will be exempted from GST.

Jaitley said that compensating states using the finance commission’s 42 percent devolution formula would have required additional tax collection Rs 1,70,000 crore.

The Centre estimates total compensation to states for losses arising from a transition to GST to be around Rs 50,000 crore in the first year. This will be met through a fund — Rs 26,000 crore will come from the corpus generated by the levy of the clean environment cess on coal and Rs 24,000 crore collected from the cesses to be levied on demerit goods such as tobacco, luxury cars, pan masala and aerated drinks.

All other existing cesses will be subsumed under GST.

Raising taxes was not an option as it would be burdensome on the common man. A cess, however, would ensure no additional burden on the tax payer and yet be able to compensate the losing States.

The Finance Minister said that “UPA did not provide for a compensation package in the law. The absence of a compensation package (in the UPA law) was a deal-breaker”.

Jaitley said that the CGST Bill seeks to consolidate various taxation laws like excise law, VAT law into a single law, making it an ideal case for moving it as a “Money Bill”.

“Give me a single illustration where a taxation law has not been a Money Bill,” he said.

On the anti-profiteering clause, which has drawn criticism from some lawmakers as well industry experts, the finance minister said that “nobody shall have unjust enrichment because of taxation. If there is a tax rebate, it must be passed on to the consumer. This provision should have been uniformly welcomed, rather than criticized.”

He agreed with Moily’s suggestion that real estate should be brought under GST because tax evasion happens in realty deals.

States, however, had a concern about falling stamp duty revenues if real estate was brought under GST.

The Council decided that a view will be taken on real estate within the first year of GST’s implementation, he said.

Petro products will be within GST, but “zero-rated” to begin with, implying status quo will continue for the time being.

States will continue to collect sales tax/VAT on petro products, while the Centre will levy excise duty as is the case now

The Council will need 75 percent majority to bring alcohol under GST, Jaitley said.

On the authority of the Comptroller and Auditor General (CAG), the finance minister said that issue was “discussed at length in the council”.

“The council took a view that the CAG’s authority comes from the Constitution and the CAG Act, not from taxation laws. The source of CAG’s authority is the Constitution and, therefore, there is no need to empower the CAG separately in taxation laws”.

These legislation are the central goods and services tax (CGST), the integrated goods and services tax (IGST), the goods and services tax (compensation to states), and the Union territory goods and services tax (UTGST).

“These are revolutionary bills which will benefit all. States have pooled in their sovereignty into the GST council, and Centre has done the same,” finance minister Arun Jaitley said.