Moving the Constitution (122nd Amendment) Bill, 2014 amid thumping of desks by the entire House, Finance Minister Arun Jaitley said it was one of the most significant tax reforms in India in recent history that has been brought after a "broad consensus" with various political parties.
The bill was supported by Congress and most of the other parties like Samajwadi Party, JD(U) and Trinamool Congress. AIADMK, however, opposed the move.
He said legislation was being enacted in the best possible way in the Indian federalism.
He said there was a need for a political consensus as far as possible to bring this bill and a process of dialogue with all major political parties and states was undertaken and the "best possible output was incorporated in the bill".
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"A legislation of this kind cannot be made on the basis of a partisan approach. It impacts on the Centre and states and we have systematically worked towards a political consensus. There is as far a consensus as possible if not unanimity as far as language and contents of the bill are concerned," the Minister said.
Speaking on behalf of Congress, former Finance Minister P Chidambaram said his party supports "idea" of GST as well as the bill, which he noted had been improved after the government held talks with various parties, including his.
"The Congress party was never against the idea of GST. The country is now ready to embrace the GST," he said, adding his party had opposed the 2014 bill but not the "idea".
Spelling out the problems his party had with the bill, he said Congress wanted a cap of 18 per cent on the tax rate under GST, scrapping of 1 per cent retrogade tax besides setting up of disputes redressal mechanism for resolving issues arising out of tax disputes between states.
"The government was (initially) rather stubborn...I, on behalf of my party, loudly and clearly wanted that the tax should be not more than 18 per cent...Taxation is the exclusive power of Parliament, we can give some leverage to the Executive, but it should remain the domain of Parliament.
corporates, Chidambaram said his party Congress had to speak for the common people, who were the "third factor" besides the Centre and states, that would be affected by taxes.
Thus the rate of 18 pc tax was the most acceptable given the economic situation of the country, he said.
"In the name of people, ... Standard rate should be capped at 18 per cent," the Congress leader said, adding he does not buy the argument that by keeping the rate at 18 per cent, the states will lose revenue.
"Let me go on record that it is hugely inflationary and will lead to a backlash if you jack up the Service Tax rate from the current 14.5 per cent to around 23 or 24 per cent," he said.
The former Finance Minister said the rate of tax must be changed by the approval of Parliament and not by the Executive.
"When we say cap the taxe rate, we are saying that it cannot be changed by the whims of the Executive. A rate must only be changed by Parliament approval. It cannot and ought not be changed at the whims of the executive. People of India want lower tax rate," he said.
wanting, his party is supporting the Bill because they do not want to be blamed for being an obstruction in the country's progress.
Taking a dig at the NDA, he said it was their "smartness" that every time they bring out a Bill, the feeling given out was as if they are going to bring about a huge turnaround in the country.
"But what happened to your old Bills. What about black money," Agrawal asked.
Alleging that the government's intention is "bad" and to raise taxes, he said, "You are saying that we don't want inflation in the country. Then why not set a low rate such as 18 per cent now itself?".
Agrawal also said while Centre has kept two-thirds vote of states in GST council, decision is by three-fourths. "So, the Centre's veto stays," he said.
"When state GST law comes, if state imposes extra tax, say, on tobacco, will you be able to stop it? Small traders are opposing GST. We have demanded that traders with up to Rs 10 lakh turnover be excluded from GST," he said.
He also wondered if GST of food products will also be there, which in turn will lead to price rise.
Noting that federalism is the basic feature of constitution, he said the Bill violates federalism.
"It also violates Article 21 of the Constitution. This Parliament has no competence to bring this Bill violative of federalism," he said.
Arguing that Tamil Nadu is a manufacturing state, he said the state will lose substantial revenue.
Jaitley also said that a uniform tax rate will bring about
seamless transfer of goods and services across country and it will help enable check its evasion.
There will be three enabling laws to bring about the GST regime - two by the Parliament and one by the state legislatures, he said.
He said as a part of consensus, states felt that consumable alcohol had to be kept out.
The Finance Minister said the concept of GST Council is Indian federalism at play and two-thirds of voting power in the council belongs to the states.
Jaitley said the Empowered Committee of State Finance Minister was consulted from time to time as one of the contentious issues was to bring on board states which had reservations.
Chidambaram said, "This is far too important legislation which will impact the next 50-100 years."
The former Finance Minister said if government is not putting the 18 per cent cap on tax rate in the Constitution bill, it must mention it when three months later it brings the GST bill here. "We will campaign that it should not exceed 18 per cent," he said.
"The heart of this Bill is the rate of tax" and that should be kept low, he added.
Stressing on the need for setting up a disputes redressal mechanism in the Council, he said, "You must oblige the GST Council to set up a dispute resolution authority, ex-ante. I am glad that some strengthening has been done to this provision. But there is still time to strengthen it. Finance Minister can do so by introducing an amendment during this debate."
Chidambaram said the dispute resolution between the Centre and a state or between two states or between a group of states is not a matter on which the Constitution is silent.
"Article 131 makes this very clear. Dispute resolution is judicial power. Time and again judges have said, if you encroach upon our judicial power we will strike it down. The draft circulated was abominally deficient," he said.
He expressed satisfaction over government agreeing to scrap the provision of one per cent levy of additional tax by states.
"How can you, in a destination-based tax, have a retrograde provision like some states being allowed to impose an additional one per cent tax? The Chief Economic Advisor pointed out that this was a retrograde provision and I am happy it was scrapped," Chidambaram added.
He also pointed out to the "clumsy" drafting of the bill but said nothing much can be done at this late stage when it is being debated upon.
He added that there is a provision on what will go or not go in the consolidated fund of India in the amendments.
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Recounting how the GST bill continued to be stuck due to opposition, Chidambaram, the former Finance Minister, said between 2011 and 2014 he had done was virtually a "char dham" (yatra).
"We tried to pass the GST Bill with the support of the principal Opposition party and we failed. In the past two years, the (NDA) government also tried to pass the GST Bill without the support of the principal Opposition party and I am glad you also failed," he said.
The Congress leader had words of praise for Jaitley, saying, "I welcome the friendly and conciliatory tone of the Finance Minister's speech."
Derek O'Brien (Trinamool Congress), while supporting the Bill, took pot shots at both Congress and the BJP.
"They (BJP and Congress) would have won the Olympic medal for ping pong with the way these two parties have played with the GST for the last 10 years," he said.
"GST could also be interpreted as 'Girgit Samjhota Tax'," he said.
Quoting various remarks by both parties, he said, "What they say depends on where they sit... In 2011, Gujarat Finance Minister opposed GST calling it retrograde. "
Referring to Chidambaram, O'Brien said the policy of his Congress colleagues was "go slow tactics (GST)".
He said it should be ensured that GST is implemented from April 1, 2017. "This ping-pong match cannot go on forever."
Sharad Yadav of JD(U) supported the Bill and said he was also instrumental in getting a consensus.
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Expressing serious apprehensions that the GST regime will hit the country's federal structure, Sitaram Yechury (CPI-M) sought an assurance from the Finance Minister that "when the GST comes, ensure that there will be flexibility so states are not forced to come with begging bowls to ask for money."
"Some flexibility should be given to the states. I demand an assurance on this issue," he said.
Demanding protection of the rights of states, Yechury quoted the Constitution and said India or Bharat is a Union of States and the federal structure and rights of the states are fundamental to the Constitution. "Without the states, there is no India," he said.
Quoting Bhimrao Ambedkar, he said "if we permit provinces to collect sales tax, a ceiling from the Centre will be a handicap."
Terming GST as a regressive tax, he said GST should be kept low as it will burden the poor more as already 62 per cent comes from indirect taxes.
He said indirect taxes were hiked by Rs 20,000 crore in the budget and remarked that the government was "enriching the rich" at the cost of the poor.
"If you do not have a cap on GST, it will be increasingly regressive tax to burden the people...The supremacy of sovereignty in the Constitution is the people. The interests of the people are supreme. Are those interests going to improve or deteriorate," Yechury sought to know.
He said "this is a very serious piece of legislation. We are making a radical departure in the way and objective of revenue collection."
The senior CPI-M leader also demanded bringing back all the other Bills, like the IGST and CGST, and said these should not be brought as Money Bills. "This is my non-legal interpretation based on common sense," he said.
Yechury said while the number of billionaires was increasing, the census figures showed that 90 per cent of Indian families earned less than Rs 10,000 a year and remarked: "you are widening the hiatus between two Indias."
"Tax collected by the state for the state GST should go to the Consolidated Fund of the state. This presents a problem. Where does the revenue go? That is an important aspect which should be clarified," he said.
"How do we protect the rights of states? We are the
council of states. I urge the Finance Minister to address this issue, and a provision be made when we discuss the GST bill," Yechury said.
Asserting that a tax rate of 24 per cent will "cripple" most of the people in the country, the CPI(M) leader said greater thought must be given to dispute redressal and it must be spelt out more concretely when it comes for discussion.
Observing that it is good that the country has got rid of the "colonial hangover", Yechury said "Westminster has three colours - green, red and royal blue. We eliminated royal blue, which is reserved for the Queen of England, by becoming a republic. We still have green and red colour code. Lok Sabha is green, Rajya Sabha is red. When something is of concern to our people, we will raise the red flag. The interest of the people are supreme."
A U Singh Deo (BJD) said the bill seeks to boost the economy and sought weightage for the states.
Satish Chandra Misra (BSP) said though his party welcomed GST, the federal structure has to be protected. Different states have different issues but GST Council has been given wide-ranging powers and the power of the state is taken away and given to the Council.
He demanded that the Vice chairman of the GST Council should be inducted from a party which is not a part of the ruling party at the Centre. "My suggestion is that at least the vice chairman of the GST Council should belong to a party which is not in the Centre," he said.
C M Ramesh (TDP) said GST will usher the country into growth era and said people around the globe were asking why it was taking so long to introduce the measure.
Praful Patel (NCP) was of the view that "transition" towards GST model will be challenging both at the states and the central levels.
"The principle of equity must be kept in mind while deciding on revenue neutral rate," he said while citing the example of the Bombay Municipal Corporation where octroi collection itself is more than the budget of several small states in the country.
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Patel said though the GST bill appeared to be a "bilateral issue" between the BJP and the Congress, "we are happy it has reached this stage in Parliament and we support it."
He said the states which are earning lesser revenues are going to be compensated and added that while Services will be impacted with GST, manufacturing will benefit.
Narendra Jadhav (Nominated) termed GST as the "singularly most important economic reform since 1991" and said it would simplify the indirect taxes regime and eliminate geographical fragmentation creating one market.
It will be transparent regime that will help avoid black money and boost GDP growth by 1.5 to 2 percentage points besides facilitating tax collection, he said, adding that it would be naive to believe that GST is a panacea to all the economic ills.
Citing its probable drawbacks, he said prices of healthcare and clothing will go up at least in the short run but added that "nevertheless it's a giant leap".
Rajeev Chandrasekhar (Ind) said GST will result in a common market resulting in more jobs and small businesses will find it easy to comply and increase ease of doing business.
Vivek Tankha of the Congress said a body should be formed
for dispute resolution to resolve issues like how the money collected will be distributed. "It would have been good if they (government) had made a provision for this in the Constitution," he said.
Asking the government to specify the maximum tax level, he said, "18 should be maximum, it is a very big rate. In Singapore, the rate in 7 per cent, in Malaysia it is 6 per cent. India will have to rethink how to bring rates down... People want to know whether the rate will be 18 per cent, less or more than that."
If the rate is high it will lead to higher inflation, he said.
Tankha said the Bill should not be treated as a Money Bill but as a Finance Bill. He termed the prosecution provisions as draconian.
Ajay Sancheti (BJP) termed it as a historic step which will lead to creation of a common market. He said a consensus on GST Bill has been evolved in the interest of development of the nation and it is a sign of a strong democracy.
Highlighting the advantages of the proposed indirect tax reform, he said it will help attract higher FDI, lead to more transparency in tax system and improve the ease of doing business in the country.
"The Centre and states stand to gain. Their revenue will increase," he said, while demanding a provision for compensating the loss suffered by local bodies.
While supporting the Bill, Surendra Singh Nagar (SP) said some sectors will certainly benefit but raised concerns over price rise.
"This Bill is related to the common man. Services will become costlier affecting common man," he said, adding that real estate prices will also increase if stamp duty and registration fee has to be paid above the GST.
Dilip Tirkey (BJD) termed it as a welcome, progressive
Bill which is going to benefit the manufacturers, retailers and consumers. However, he said, the losses incurred due to delay in roll out will be known only after implementation of GST.
He said Odisha's demand for outstanding dues is not being met and urged Finance Minister to release funds worth Rs 2,669 crore.
Garikapati Mohan Rao (TDP) said both Telangana and Andhra Pradesh are in crisis and demanded a guarantee regarding the mode of payment to the states.
He asked the government to clear pending dues related to VAT before the passage of this Bill.
K Parasaran (Nominated) said the definition of services appeared to be "vague". He said the GST Council comprises of executives from Central and state Governments and therefore, their recommendations should be placed before both Houses of Parliament.
Hishey Lachungpa (SDF) supported the Bill saying it will bring a "sea change" in indirect tax regime in the country.
He said Sikkim will get less share because of 14th Finance Commission recommendation and also bear losses as the state will not be able to levy 1 per cent manufacturing tax. He demanded that the Finance Minister will address this issue.
P Bhattacharya (Congress) sought an apology from the BJP for opposing the GST Bill when it was in Opposition that led to delay in rollout of the indirect tax reform.
"Purpose of the Bill will be defeated if it leads to inflation," he said, adding that the GST rate should have been specified in the Constitution itself.
Mahesh Poddar (BJP) said the Bill has come at the right time. He said it will create a common market and take the country forward.
Listing out the advantages of GST, he said it will lead to increase in GDP growth by 0.9 to 1.7 per cent as well as increase in exports/imports.
He said the inflation rate will increase initially but come down after some time.
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Naresh Gujral, member of ruling NDA constituent SAD, praised Prime Minister Manmohan Singh for bringing the GST.
He said the GST bill and the abolition of license quota raj in 1991, both were a brainchild of Manmohan Singh and "he deserves nation's applause and a debt of gratitude.
"This bill will result in much greater compliance and to a large extent help in the elimination of the black money in this country," he added.
V Vijay Sai Reddy (YSR Congress) said the GST council will make recommendations for special category states and asked for inclusion of Andhra Pradesh in the list.
He added that the states should be compensated 100 per cent for the revenue loss in the first five years after the roll out of GST.
TKS Elangovan (DMK) raised the issue of having a "fair and transparent mechanism" to provide compensation to the states for revenue loss.
Narendra Budania (Congress) said the bill was originally brought by his party and was vehementally opposed by the BJP.
"Then Gujarat Chief Minister and prsent Prime Minister Narendra Modi vehementaly opposed the bill. We want him to come to the Hosue and feel sorry. If he can't then we are also ok if the Finance Minister ask for forgiveness," he said.
He also asked for a mechanism for compensating the local bodies. "What will happen to them (local bodies)? How will you divide the taxes? If the GST rate is above 18 per cent it will be an injustice to the country," Budania noted.
Anil Desai (Shiv Sena) asked for a mechanism to compensate revenue loss to the Mumbai Municipal Corporation, the country's richest local body.
He asked for a mechanism where in the Corporation directly gets the funds from the centre.
D Raja (CPI) said it is not yet clear as to what is in store. "We are going to enter an unchartered territory. We don't know what are going to be the consequences as we are going to create a common market," he said.