With main opposition Congress and most other parties on board, Rajya Sabha tonight passed a bill to amend the Constitution to facilitate rollout of the historic GST amid government's assurance that the tax rates would be kept "as low as possible".
The Constitution (122nd Amendment) Bill, 2014 was approved by the Upper House with 203 votes in favour and none against, after a seven-hour debate during which a rare bonhomie was witnessed among the ruling and the opposition parties.
Six official amendments, including scrapping of one per cent additional tax, moved by the government were approved with cent per cent votes.
The bill was passed by the Lok Sabha earlier. It will now go back to the Lower House to incorporate the amendments approved by the Rajya Sabha. The bill will also have to be approved by 50 per cent of all the state assemblies.
AIADMK was the only party to oppose the measure and its members staged a walkout from the House to register their unhappiness over the bill which lays the ground for rollout of uniform Goods and Services Tax (GST) regime that will subsume all indirect taxes including central excise duty and state VAT/sales tax.
The easy passage was facilitated after the main opposition party Congress, which had been stalling the measure for over two years, came on board after the government made about six changes in the bill, including scrapping of 1 per cent manufacturing tax and incorporate clearer provisions for compensating states for revenue loss for five years.
Replying to the debate during which most parties pressed for a Constitutional cap on GST tax rate at 18 per cent, Finance Minister Arun Jaitley said the guiding principle would be to keep the "rates as low as possible, certainly lower than what it is today.
"As we stand today, the political objective is very
clear. The rate has to come down, the rate must be reasonable. We will try for this for the most reasonable rate," the Finance Minister said.
He was responding to the major demand by most of the parties for capping the tax rate at 18 per cent.
Jaitley said the Chief Economic Advisor, who was quoted by Chidambaram and others, had suggested a rate of between 16.9 and 18.9 per cent which was not acceptable to the state finance ministers.
As a follow up to today's development, the CGST and IGST bills, which will be drafted by the Empowered Committee of state Finance Ministers, will be introduced in Parliament during the Winter Session.
Before the passage of the Constitution Amendment Bill, Congress insisted on an assurance by the government that the CSGT and IGST would be treated as Finance bill and not money bill.
Responding to this, Jaitley said, "We have absolutely no intention, in any way, to bypass the Constitutional provisions as far as requirements of the bill are concerned. We will fully comply with the Constitution and precedence."
He added that it would be "unreasonable" to give an assurance since he was not aware of the content of those bills, neither had the GST Council discussed the issue and nor was there any such precedence.
The Finance Minister, however, said the matter will be discussed with the opposition parties before moving ahead, an assurance which satisfied the Leader of Opposition Ghulam Nabi Azad.
Congress leader and former Finance Minister P Chidambaram earlier said the government is not obliged to bring those bills as money bills and in the interest of the country "you should give an assurance to the House".
On the additional one per cent manufacturing tax, he said experts were divided on the issue and many felt that it would have a cascading affect.
The proposal of imposing one per cent additional tax however, has been dropped.
Members of Shiv Sena, a constituent of the ruling NDA,
said Mumbai municipal corporation, which garners around Rs 7,000-7,500 crore per year as octroi, will suffer revenue loss.
Giving an assurance to them, the Finance Minister said state governments can compensate the municipal bodies as part of the devolution of tax proceeds.
He said that GST would bring three changes - system will be more efficent, complaint and there will be less tax evasion; no cascading affect of tax on tax and; there will be several items on which there will be lower or no tax which would address inflationary concerns.
At present the indirect taxes levied by centre and states go beyond 30 per cent and for the GST rates "we must trust the representatives of states an centre. Our guiding principle will be that we will lower the taxe rates".
Referring to the issue of compensation which has been amended, Jaitley said that the word "shall" has been used in place of "may" as states have developed apprehensions about the centre releasing funds to them.
Usually "may" is used as mark of respect to Parliament, he said, adding it was unprecedented.
The GST, he said, will not curtail the power of states but it will promote a concept of pooled sovereignty wherein the Centre and states will have uniform tax structure.
He said under the GST Council, which will be responsible for setting the rates, the Centre and the states will be compelled to work with each other and both will have veto power.
Every political party which is in power some state or the other will be represented in the GST Council, he said.
Under the modified provisions, GST Council will be
required to establish a mechanism for adjudication of disputes, which could arise between the Centre and states or among states themselves.
The 2014 bill authorised GST Council to decide upon the modalities for resolution of disputes.
With these official amendments, the government has partially met the demands of the Congress party which has been blocking the bill in the Rajya Sabha. One of the three demands of the Congress was to do away with the 1 per cent additional manufacturing tax.
On the demand for a Supreme Court judge-headed panel for resolving GST disputes, the official amendments say that the GST Council will establish a mechanism for solving disputes.
With regard to the demand for putting a GST rate cap in the Constitution, Jaitley said that the decision would be taken by the GST Council which will have representation from the centre as well as states.
