India on Wednesday moved one step closer towards implementing the biggest tax reform since Independence as the Lok Sabha passed with voice vote four GST Bills after a marathon seven-hour debate.
With the Lok Sabha approving four supplementary legislations -- The Central GST Bill, 2017; The Integrated GST Bill, 2017; The GST (Compensation to States) Bill, 2017; and The Union Territory GST Bill, 2017 -- the historic Goods and Services Tax (GST) regime today came a step closer to meet its July 1 target of rollout.
All four bills were passed after negation of a host of amendments moved by the opposition parties.
Replying to the seven-hour-long debate, Finance Minister Arun Jaitley said the GST, which will usher in a uniform indirect tax regime in the country, will make commodities "slightly cheaper".
He said the GST rates would depend upon whether the commodity is used by a rich person or a common man. Jaitley said once the new regime is implemented, the harassment of businesses by different authorities will end and India will be one rate for one commodity throughout the country.
He said the GST Council, comprising Finance Ministers of Union and states, had agreed to take a decision on bringing real estate within the ambit of the new tax regime within a year of its rollout.
On the impact of GST on prices, Jaitley said: "Today you have tax on tax, you have cascading effect. When all of that is removed, goods will become slightly cheaper".
On why the Council has decided on multiple GST rates, Jaitley said one rate would be "highly regressive" as "hawai chappal and BMW cannot be taxed at the same rate".
He said currently food articles are not taxed and those will continue to be zero rated under the GST. All other commodities would be fitted into the nearest tax bracket.
The GST Council has recommended a four-tier tax structure -- 5, 12, 18 and 28 per cent. On top of the highest slab, a cess will be imposed on luxury and demerit goods to compensate the states for revenue loss in the first five years of GST implementation.
However, the Central GST (CGST) law has pegged the peak rate at 20 per cent and a similar rate has been prescribed in the State GST (SGST) law, which takes the peak rate to 40 per cent which will come into force only in financial exigencies.
Jaitley said the cess would be transient for a period of 5 years so that the proceeds can be utilised to compensate the states.
Touted as the biggest taxation reform since Independence, GST will subsume central excise, service tax, VAT and other local levies to create an uniform market. GST is expected to boost GDP growth by about 2 per cent and check tax evasion.
Jaitley said that GST Council is working on the basis of consensus and slowly all items will come within the ambit of the new indirect tax regime, which will ensure free flow of goods and services throughout the country.
Replying to the discussion on the four bills, Jaitley said once the new tax regime is rolled out, a businessman will have to deal with only one assessing officer instead of multiple authorities at present.
The Bill will also improve tax compliance and ensure that assessees get input credit of the taxes paid.
To opposition questions as to why the government brought the legislations as 'Money Bills', Jaitley cited the Constitutional provisions and said that since 1950 all tax- related legislations were brought before Parliament as Money Bill.
With regard to centralised registration to banks, the Minister said the GST Council will take a final decision in this regard. Elaborating on the anti-profiteering provisions, he said these are meant to ensure that the benefits of reduction in
tax rates are passed on to the consumers and there should be no "unjust enrichment".
Responding to the concerns expressed by members on bringing agriculturists within the ambit of GST, he said the GST bill have provided a definition of agriculturists for the purpose of exemption from registration.
He further said most of the agricultural produce would continue to be zero rated and there should be "no confusion" about it.
As regards Jammu and Kashmir, the Finance Minister said the law passed by Parliament will not apply to the state which will have to legislate its own law and integrate with the GST regime.
On the powers of CAG to audit GST, the Minister said that the official auditor draws its power from the Constitution and the CAG Act and there was no need to mention it separately in the legislations.
Jaitley also dismissed the contention that GST would erode the power of Parliament and state legislatures to levy taxes. He said the taxation powers would continue to be with the legislatures and would be used on the recommendations of the GST Council.
Under the new regime, sovereignity would be shared between the Centre and the states.
"The GST idea has created a grey area (with regard to power of Centre and states)... Taxes will be jointly imposed by Centre and states, there will be one tax," he said, adding an expert committee has been appointed to remove bottlenecks relating to GST implementation.
Prime Minister Narendra Modi hailed the passage of the bills and said, "Congratulations to all countrymen on passing of GST bills. New Year, New Law, New Bharat."
Revenue Secretary Hasmukh Adhia also acknowledged the passage of four bills and termed it as a "historic milestone in economic history of this country".
"The hard work put in by GST Council members and officers bore fruits today in terms of 4 classic pieces of legislation passed by the Lok Sabha," Adhia said.
Initiating a discussion on the four GST bills in the Lok Sabha, Congress leader Veerappa Moily said India lost a whopping Rs 12 lakh crore due to years of delay in implementation of the GST due to the stiff opposition by the BJP when the UPA government was in power.
Moily said what the NDA government has brought about in the name of a "revolutionary tax reform is not a game changer but only a baby step".
Criticising various provisions in the proposed GST regime, Moily said it will be a "technological nightmare" and the anti-profiteering provisions in it are "far too draconian."
"Seven to eight years have passed after the erstwhile UPA government wanted to bring the GST bill. Some parties then felt it should be halted due to reasons best known to them," he said.
The former Law Minister said due to the delay caused in the roll out of GST, the country lost around Rs 1.5 lakh crore annually and put the total loss at Rs 12 lakh crore.
Asking who will compensate for this "huge loss", Moily said the country was deprived of massive financial benefits due to the "damaging political gambles".
Moily also slammed the Narendra Modi government for "high as well as too many taxes under the proposed GST system which he said does not reflect the original spirit behind the new tax regime."
"The one nation, one tax concept is only a myth. There are too many rates, cesses... What you brought today cannot be called a game changer but only a baby step," said Moily.
Referring to the "complexities" in the inter-state transactions proposed under under the GST, he called some of the provisions as "retrogade".
The Congress leader also took strong exception to leaving the real estate sector out of the ambit of the GST.
"The real estate sector generates lot of black money. It is very unfortunate that the sector was not brought under the ambit of GST," said Moily.
Moily said there will be a turf war between the tax administrations of central and state governments after the implementation of the GST.
The senior Congress leader said the GST will enhance only administrative complexity in the tax system and there will be "complete anarchy" in taxation.
"Intention may be good but this will land the country in complete tax distortion," he said.
Moily said there was no clarity how the tax benefits will be availed by the common people.
He said the GST legislation was an example of how the government is pursuing a "chalta hai" (casual) attitude as there was not enough provision to protect the common people.
All members of the Rajya Sabha should resign if they have any pride left, Moily said in the Lok Sabha, slamming the government for undermining the house of elders by bringing in legislation to the lower house as money bills to ensure their passage.
"It is the biggest step in federal law, federal finances. You are a representative of the council of states. Finance Minister, you are denying rights to yourself," Moily said, referring to Finance Minister Arun Jaitley, a Rajya Sabha member.
"I think history will definitely reveal what kind of deprivation we are doing to the federal concept of this great nation."
"Today we are happy that there is a big, I won't say brute, majority here. I won't say bulldozing because Mr. Venkaiah Naidu said don't use that word. (There is) Nothing wrong, you have the right, you feel personally you have the right to do it, deprive the Rajya Sabha," the Congress leader said.
"Otherwise what is the point in having council of states, they don't have a voice to demonstrate the assault on the federal structure of the country, If they have some pride all of them should resign according to me. If there is some pride left," he said.
Opposition parties have been accusing the government of trying to bulldoze legislations by making them money bills, leaving no scope for the Rajya Sabha members to bring in amendments or to oppose the bill.
A money bill can only be introduced in the Lok Sabha, and once the lower house passes it, the Rajya Sabha has to return it within 14 days, otherwise the bill is deemed passed in both houses.
The government last year brought a bill related to Aadhaar as a money bill.
Earlier, Finance Minister Arun Jaitley introduced four bills in the Lok Sabha to give effect to the Goods and Services Tax (GST).
"The four bills are being taken together because the matter of the bills are same," Jaitley said while introducing the bills.
Jaitley said the legislations will have to be passed by Parliament and one by each of the state assemblies to turn India into one market with a single tax rate.
The bills are the Central Goods and Services Tax Bill, 2017, the Integrated Goods and Services Tax Bill, 2017, the Goods and Services Tax (Compensation to States) Bill, 2017 and the Union Territory Goods and Services Tax Bill, 2017.
The CGST Bill will enable levy and collection of tax on intra-state supply of goods and services or both by the central government, while the Integrated Goods and Services Tax (IGST) Bill, 2017, provides for the levy and collection of tax on inter-state supply.
The Goods and Services Tax (Compensation) provides for compensation to the states for the loss of revenue arising on account of implementation of the GST.
The Union Territory Goods and Services Tax (UTGST) Bill, 2017, will enable levy and collection of tax on intra-state supply of goods and services or both by the union territories.
"Before the constitutional amendment, under the indirect tax regime, the Centre had the right for implementing some taxes.... The discussion had been on for long for uniform tax system under which states and the Centre will share the tax collection," he said.
Deliberating on the federal structure of the GST Council -- which is responsible for deciding on the drafts of these four bills -- he said that it was the first federal institution by way of pooled sovereignty as it had representation from the Centre and all states and union territories.
"GST Council is the first federal institution. We have to make sure the federal institution works. It has the delicate balance of Centre and state relationship. While we are free to make recommendations to the Council, at the same time we need to honour the federal structure formed by way of pooled sovereignty," he said.
GST is inching closer to a pan-India implementation from July 1, with rules relating to registration, payment, returns and in-voice refunds having already been approved. The remaining rules dealing with composition and valuation will be discussed in the Council's March 31 meeting, he added.
Jaitley said the fitment of commodities into tax brackets will start next month onwards. There will be a zero per cent tax slab for essential food items, apart from which there are four rate slabs - 5 per cent, 12 per cent, 18 per cent and 28 per cent.
The Finance Minister said that luxury goods or sin commodities, which have adverse effect on health will call for approximately the same effective taxation rate.
Currently if a luxury vehicle has 40 per cent tax and cigarette has 65 per cent tax, they will be put in the 28 per cent slab and the remaining difference will be charged as cess to compensate states for any revenue loss, Jaitley said.
Participating in the debate, BJP member Udit Raj said the GST would bring about uniformity in the tax system and be immensely beneficial to the 1.2 billion people of the country.
Raj, a former revenue officer, said the GST Bill has been brought to end the different tax slabs prevalent in different states besides abolishing the cascading effects of the current tax structure.
Under the GST, there will be same tax structure across the country, all anomalies will come to an end and extend the tax base, he claimed.
The BJP MP dismissed the suggestion that with the implementation of GST, the powers of the state legislatures to enact tax laws will be completely abrogated, saying the legislation was prepared only with the consent of all state governments.
He said the Centre will not dictate the GST Council but will act as buffer between the central and state governments.
Raj said GST implementation will automatically encourage digitisation, bring in transparency and lower the prices and the hoarding of essential commodities, besides curbing blackmoney. "The GST is a game changer.. It will lead to a corruption-free India," he said.
He also tried to counter Moily's argument that the delay in implementation of GST led to the loss of Rs 12 lakh crore and saying that the earlier Opposition was responsible for delaying implementation of the legislation.
AIADMK member Venkatesh Babu termed the GST as the biggest tax reform initiative post independence but said there were many challenges in its proper implementation.
He said Tamil Nadu, being one of the manufacturing states, had initially opposed the GST Bill but it was happy that some of the concerns of the state were addressed.
"There will be huge revenue loss to manufacturing states like Tamil Nadu. Some of our concerns were addressed while some are yet to be addressed," he said.
Babu said through the GST Council, the central government will get 'veto power' and sought proper representation and powers to all states in it.
He also said that there will be an increase in the prices of some goods like fertiliser, which is now sold at a tax slab of 17 per cent (12 per cent excise duty and 5 per cent VAT), but the tax in fertiliser will go upto 25 per cent post GST implementation.
The AIADMK MP, however said, "the Tamil Nadu government is fully committed for successful implementation of GST".
TMC member Kalyan Banerjee said the West Bengal government led by Mamata Banerjee has in-principle supported the "path-breaking" GST legislation but expressed concern over the government's hurry in its implementation.
Banerjee said it was West Bengal which always fought for cooperative federalism and fiscal autonomy and the rights of common people and small traders.
He said the GST will bring a single tax structure for the common people and small traders and it was West Bengal which ensured that no state government suffers financially due to the implementation of GST.
The purpose of GST is to end multiplicity of taxes and its cascading effects and all benefits should be passed on to the common people, he said.
Banerjee also suggested that the government should look into the GST models of other nations so that the legislation is implemented properly. Otherwise, the initiative may fail.
Banerjee asked the government not to rush with the GST bills and have a re-look at its defects.
"You have time...Still there are lacuna and errors and necessary amendments should be brought," he said, adding no one should take credit for this law. "Humne kiya hai nahin, sabne kiya hai, ye baat bolna hoga (don't say we have done this. Everybody has done this)," he said.
Raising concerns, Bhartruhari Mahtab (BJD) said that everybody was saying that the GST law will be a game-changer but "we (BJD) believe that it will be illusionary to expect too much from it".
There is a view that this law will make a common market, there will be no entry tax at borders, invoicing will be simpler and lot of other benefits, but "I will remind again that do not expect too much from the GST".
"Claims that consumers will benefit is also illusionary," he said, adding everybody is asking whether the prices will come down or not.
Mahtab also questioned the need of the anti-profiteering clause, saying "we have a competition law in the country. Why is the anti-profiteering clause in the bill? I fail to understand this. This is a retrograde step".
He raised the issue of entry tax in Orissa and urged the Finance Minister to take up this case on the state's behalf.
The other concern is about requirement of multiple registration of service providers as it will increase the compliance cost. "This is not in the spirit of ease of doing business".
Citing the definition of agriculture in the GST bill, he said "You are bringing agriculturists to the tax net.
Agriculture is being taxed. Can we deny it?" He said four states were against this but their suggestions were not accepted by the GST Council.
"Share cropping is now going to be taxed by this bill. Widening the tax net is one thing" and bringing some people into it is different and it is highly objectionable, he added.
He also pointed out that items like dairy farming and poultry has not been included in the definition of agriculture and these may also be taxed. So, this provision needs to be addressed. "Are you going to bring them under GST and widen the tax net," he asked.
Anandrao (Shiv Sena) welcomed and supported the bill, but said that high tax will increase the burden of consumers and this needs to be looked into. He also asked the reason of not bringing consumable alcohol under the GST ambit.
Supporting the bill, Jayadev Galla (TDP) pointed out that the GST will benefit the consuming states, but add to the agony of other states, including Andhra Pradesh. "We are going to loose Rs 2,000 crore. Andhra Pradesh is loosing because there is a reduction in duty," he said.
The Centre must look at the pathetic fiscal condition of Andhra Pradesh after its bifurcation of the state and compensate it accordingly. He also sought clearing of all the CST dues of the states.
He also said that under taxation, there should not be any discrimination regarding chit fund companies and added that the GST would bring smile to some sectors but agony to some others.
Konda Vishweshwar Reddy (TRS) compared the GST Bill with a main dish of Ugadi festival, which is "khatta (sour), meetha (sweet) and kadwa (bitter) in taste."
He said as the GST Bill is ushering in a new era, it is sweet. The tax compliant hospitals and builders may have a competitive disadvantage which "can be kadwa (bitter)."
He also raised concern over the anti-profiteering clause. "It is simply inserted and it gives way for harassment and it could be potentially kadwa and this goes against the Prime Minister's maximum governance, minimum government".
Reddy said the bills has only four tax slabs and asked "so will it fit all the commodities? Absolutely not."
On compensation to the states, he said not all states were growing at 14 per cent, but a state like Telengana is growing at 16 per cent.
Attacking the GST Bill, Mohammed Salim (CPI-M) said "are we replacing Parliament" with the GST Council.
He also pointed out that the government was claiming to bring far reaching changes "but are we not outsourcing the law- making process? Are we making the GST Council a clone of Parliament," he asked.
Salim also said that in the name of widening the tax net, the government wants to bring agriculture in that net.
Poonam Mahajan (BJP) said the government is bringing back the economy on smooth track and GST will boost growth.
Prem Singh Chandumajra (SAD) supported the GST bills, saying it would help plug leakages, increase revenues and boost growth.
He said cooperative societies should be exempted from the purview of GST as otherwise poor people will suffer losses. Chandumajra expressed concern over levy of GST on lease of land, saying it would increase the cost for farmers.
Sirajuddin Ajmal (AIUDF) said GST would reduce complexities of taxation but the government should take requisite measures before the new tax regime is implemented as otherwise it would impact commonman.
He also demanded a mechanism to reduce harassment to taxpayers.
Saugata Roy (TMC) said the GST will undermine the federalism of the country.
N K Premachandran (RSP), Joice George (CPM) and Rajeev Satav (Congress) echoed the same apprehension.
"The law gives the GST Council an arbitrary and discretionary powers," Premchandran said.
Roy said no political party is opposed to GST, but the "government is in a hurry" to bring in the legislation even when some basic questions related to it remain unanswered.
The Opposition members also sought to know how the Centre would compensate the states, with Roy asking where will the funds to reimburse the money come from.
Murli Mohan (TDP) said Andhra Pradesh will see a revenue decline of Rs 23,000 crore over the next five years after implementation of the GST.
He said revenue earnings of his state had dried up after bifurcation of Andhra Pradesh in 2014 and wondered how the Centre would compensate it.
Bishnu Padat Ray, lone MP from Andaman and Nicobar Islands, demanded compensation of Rs 150 crore of octroi earned by the Port Blair Municipal Council, and said the archipalego is largerly a consuming Union territory.
Others who supported the bill include Santosh Kumar (JDU) and Sushil Kumar Singh (BJP).
(With PTI inputs)