A day after the
meeting of the Empowered Committee of State Finance Ministers raised its
concerns about the GST Bill, the Cabinet cleared the changes in the
Constitutional Amendment Bill in line with the demands made by the panel,
clearing the way for the much-needed tax reform to be passed in the current
Parliament session.
The
move by the Cabinet, chaired by prime minister Narendra Modi, is commendable for the swift
action taken and shows the seriousness of the NDA government in taking up the
reform process, according to experts.
On
Wednesday, the Cabinet approved the dropping of the 1 percent additional
manufacturing tax and also provided guarantee to compensate states for any
revenue loss in the first five years of the rollout of the proposed indirect
tax regime.
“It
is indeed commendable that the Cabinet has taken up the GST matter within a day
of the meeting of the Empowered Committee of state finance ministers. This
depicts the resolve and commitment of the Government to move ahead on
GST," MS Mani, Senior Director – Indirect Tax, Deloitte Haskins &
Sells LLP, said in a statement.
"The decision to
do away with the 1% tax proposed earlier to compensate the manufacturing states
will remove a major aberration in the GST value chain. Further, the statement
that the states would be compensated for revenue losses for five years would go
a long way in addressing their concerns on a very crucial aspect of the GST
process,” he added.
Apart
from the Congress party, the 1 percent additional tax has been a bone of
contention even for the industry, which termed it a "bombshell" that would defeat the whole purpose of
PM Modi's pet Make in India scheme. The levy was introduced to placate
manufacturing states such as Gujarat and Tamil Nadu, which would lose revenue
on account of the GST.
Pratik
Jain, partner at KPMG had told Business
Standard that the 1
percent additional tax will compromise the efficiency of the supply chain.
As
far as compensation for state governments is concerned, the state finance ministers
on Tuesday had said that wording in the Bill needs to be changed to bring about
clarity.
"You
will be happy to know that unanimously a wording was proposed which is clear
that five years and that it will be implemented, a very nice constitutional
amendment wording was proposed by the empowered committee which I proposed on
the behalf of all the finance ministers. I believe that much of it will be
accepted," West Bengal finance minister Amit Mitra, who heads the
empowered panel, had told the CNBC-TV18 in an interview.
The
Cabinet-approved Bill now provides that the Centre will give 100 percent
compensation to states for first three years, 75 percent and 50 percent for the
next two years.
With
the Centre accepting the changes, the NDA government has indeed made a giant
step forward to bring on board all the state governments.
Harishanker
Subramaniam, national leader, indirect tax, Ernst and Young, said the Cabinet
approval is a "very welcome" step.
"The
cabinet's clearance of crucial amendments in the Constitution Amendment Bill in
response to Empowered Committee discussions like removal of 1% origin tax, and
5 years compensation to States is indeed very welcome and will pave the way for
political consensus and early passage of bill in the monsoon session," he
said in a statement.
According
to a PTI report, 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.
Congress demands
However,
for the Congress there are still two more demands that have not been completely
met. These demands are including the GST rate in the statute and setting up a
Supreme Court judge-headed dispute resolution body. These demands have not been
accepted.
However,
the Constitutional Amendment Bill will include a clause on the dispute
resolution mechanism. As per the clause, any dispute between states and the
Centre will be adjudicated by the GST Council, which will have representation
from both the Centre and states. An NDTV report says the government has agreed
to give states more power in the independent body.
As
far as including GST rate in the Constitution is concerned, there is a talk of
mentioning the rate in one of the two supporting legislations that need to be
passed after the Constitution is amended.
These
two changes will only meet the Congress demands halfway. It remains to be seen
whether it will indeed placate the party leaders, who are now cornered on the
issue with most coming on board with the Centre.
The
Bill, with the changes, is expected to be taken up in the Rajya Sabha as early
as this week, but certainly by next week. Once the Rajya Sabha approves the
legislation, the amended Bill will have to go back to the Lok Sabha again for
approval.
Representative
Image
Source: FirstPost
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