GST Bill: Green light for ‘one nation, one tax’
After being subject to months of haggling and histrionics, the Goods & Services Tax (GST) finally had its historic day in the Rajya Sabha with the passage of the Bill to amend the Constitution, paving the way for what is popularly referred to as the concept of “one nation, one tax.”
Barring the AIADMK, which staged a walkout on the plea that it violated federalism, all others, including the Congress, voted for the Bill.
Led by the former Finance Minister P. Chidambaram, the Congress, supported by members of some other parties, made a valiant effort to extract an assurance from Finance Minister Arun Jaitley that as and when he would introduce the subsequent legislation to operationalise the GST, it would be as finance rather than money bills. This was to ensure that they would also be voted in the Rajya Sabha.
However, Mr. Jaitley refused to yield, stating that he could not give a commitment on future legislation whose contours would be decided by the Centre and the States together.
The Rajya Sabha passed the constitutional amendment by two-thirds majority, as all parties, except the AIADMK, pledged support. The amendments moved by Mr. Jaitley were also put to vote. The Bill will now be returned to the Lok Sabha for its approval.
The constitutional amendment will enable both the Centre and the States to simultaneously levy the GST, which will subsume all indirect taxes currently levied, including excise duties and service tax. It will be levied on consumption rather than production.
Two components
The GST will have two components keeping in mind the federal structure of India: the Central GST (CGST) and the State GST (SGST).
The shift to the GST regime will lead to a uniform, seamless market across the country. It will be a uniform rate, will check evasion, and boost growth rates, Mr. Jaitley said initiating the debate.
Earlier in the day, lead speaker for the Congress, Mr. Chidambaram, made it clear that the main Opposition party will support the long-pending Bill only if the government gave firm assurances on two things: keeping the GST rate capped at 18 per cent in the subsequent legislation needed for the GST’s roll-out and bringing forth these as financial bills rather than money bills, which the Upper House will not just discuss but also vote on.
Why is this move so important?
The goal is to create one single market. Currently, everything sold in India is subject to a multitude of taxes varying from state to state.
This is a bureaucratic burden, with a lot of money lost in a fragmented market. With every state deciding its own taxes it also encourages local protectionism.
The new efficiency aims to boost growth, with optimistic estimates suggesting more than 2% of added economic growth. India already has overtaken China as the world's fastest growing economy.
What are the changes?
The Goods and Services Tax will replace that confusing jumble of existing taxes - ranging from lottery and entertainment tax to VAT, sales tax or luxury tax - with one single tax.
There also will be no more taxes at the different state borders within the country.
Currently, goods brought for example from the northern city of Haryana to Chennai are taxed in six different states.
What happens next?
Although the vote in the upper house is labelled a breakthrough, the actual tax is still quite some time off. First, at least half of the country's 29 states will have to approve the bill before it can become law. Then, the actual tax will need to be decided. A government panel has suggested a rate of 17-18%.
The government target for the tax coming into effect is April 2017 but many doubt it will be in place by then. It's to be an electronic tax with no more manual filing - the massive IT infrastructure will be an added challenge on the way to India's tax miracle.