Signaling an end to the logjam over the passage of the GST Bill in the Rajya Sabha, the Union Cabinet on Wednesday approved changes to the GST Constitutional Amendment Bill, providing for full compensation to states for first five years of roll out of the new indirect tax regime.
At a meeting with his state counterparts yesterday, Finance Minister Arun Jaitley agreed to include in the Bill the mechanism of compensating states for all loss of revenue for five years.
Furthermore, the Cabinet also agreed to waive off the levy of 1 per cent additional tax levy, one of the key demands of the Congress which has been stalling the passage of the bill in the Upper House.
The Cabinet also dropped a 1 per cent manufacturing tax.
The Bill in its present for provides that the Centre will give 100 per cent compensation to states for first three years, 75 per cent and 50 per cent for the next two years.
However, the Select Committee of the Rajya Sabha had in its report recommended 100 per cent compensation for probable loss of revenue for five years.
The Cabinet, headed by Prime Minister Narendra Modi, decided to include in the Constitutional Amendment Bill that any dispute between states and the Centre will be adjudicated by the GST Council, which will have representation from both the Centre and states.
With states on board and the Cabinet approving the amendments, the government is hopeful of passage of the long-pending Goods and Services Tax (GST) Bill in the ongoing monsoon session of Parliament, which ends on August 12.
The GST Bill, with the changes approved by the Cabinet, could come up in the Rajya Sabha as early as this week, but certainly by next week.
The changes approved by the Cabinet are to the Constitutional Amendment Bill that was approved by the Lok Sabha in May (rpt) May last year. Once the Rajya Sabha approves the legislation, the amended Bill will have to go back to the Lok Sabha again for approval.
"The amendments to the GST Constitutional Amendment Bill have been cleared," a top official said after the meeting of the Union Cabinet chaired by Modi.
The amendments were taken up by the Cabinet after Finance Minister Arun Jaitley's assurance to state finance ministers to include in the Bill the mechanism of compensating states for all the loss of revenue for five years.
Terming it a very big development, Chairman of the Empowered Committee of State Finance Ministers Amit Mitra had yesterday said that appropriate wordings on compensation would give confidence to the states regarding Centre.
"I cannot go into details of the wordings, I can only give you spirit of it. States are satisfied that in the constitutional amendment the wording (will be provided) by which states will be guaranteed five years of compensation if there is any loss of revenue," Mitra said.
The government plans to roll out GST by April 1, 2017, and is working overtime to build consensus to get the Bill passed in the ongoing Monsoon Session of Parliament ending on August 12.
With Congress demand of getting GST rate capped in the Bill delaying its passage, the Centre yesterday built a broad consensus with the states that the rates should not be mentioned in constitution and instead could figure in GST law.
It was also assured that the tax rate in the new regime, which is to be decided by the GST Council, will be less than what it is at present.
In the new regime, there will be one Central GST or C-GST and State GST or S-GST. States levy sales tax or VAT on goods sold within their jurisdiction and get a Central Sales Tax (CST) on sales made outside their territories.
The GST Bill, which intends to convert 29 states into a single market through a new indirect tax regime, was earlier planned to be introduced from April 1 this year, but the deadline was missed as the legislation to roll it out remains in limbo in the Opposition-dominated Rajya Sabha.
The government is keen to get the GST Bill approved during the current monsoon session of Parliament ending August 12 but is facing opposition from Congress which wants 18 per cent cap on tax rate to be part of the Constitutional Amendment Bill while the one per cent additional tax in hands of states over and above the GST rate be scrapped.
But the government said the demand of cap was difficult to accept because they would need to amend the Constitution every time for changing the rate, which will be decided by the GST council.
The Congress, however, agreed to consider alternative government proposals earlier this month.
By doing away with the 1 per cent inter-state tax over and above the GST rate, the government has met one of the three key demands over which Opposition Congress has been blocking the Bill in the Upper House.