GST FINALLY GETS PARLIAMENT NOD
After nearly a decade-long wait, the Goods and Services Tax (GST) Bill was finally approved by the Parliament with Prime Minister Narendra Modi saying the new legislation will end tax terrorism, reduce corruption and black money as well as make consumer the "king". First the Rajya Sabha approved the Constitution (122nd Amendment) Bill on August 3 and the Lok Sabha was quick to ratify the changes made by the Upper House in the legislation it had originally passed in May 2015. Modi speaking in Lok Sabha thanked all parties for supporting the GST, saying it reflected "maturity" of the Indian democracy as such a crucial legislation was approved with consensus rather than on the basis of numbers. He hailed it as a "great step by team India" that will help transform the economy, bring in transparency and bring in the system of "one country one tax". He emphasised that the passage of the bill by Parliament was not a victory of any party or government but was everybody's victory as it highlighted the success of the democratic ethos of the country. Finance Minister Arun Jaitley, while replying to the debate, said the tax rate under the GST regime will be kept at "minimum workable rate" as no state government can annoy its people by having a higher rate. He said the rate will be decided by the GST Council. He, however, virtually ruled out an assurance that the GST legislation will not be brought as Money Bill, a key demand of opposition Congress. The national sales tax or GST, the biggest tax reform since Independence, will replace a raft of different state and local taxes with a single unified value added tax system to turn the country into world's biggest single market. The 66-year-old Constitution, which gives power to Centre to levy taxes like excise, and empowers states to collect retail sales taxes, was amended though the 122nd Constitution Amendment Bill. Modi said the GST will "also be the best example of cooperative federalism" and "Together we will take India to new heights of progress". "We will also try and keep the rate as low as possible, certainly much lower than what the present situation is. And as compliance increases, the possibility of that rate coming down further would be there," Jaitley said. The tax rate, he said, would be decided by the GST Council comprising of Union Finance Minister and representatives of all 29 states. "We must trust the sense of responsibility of the states who belong to the same political parties as us. Who in their last meeting said that our guiding principle is going to be -- one we will lower the burden of tax," he said. The Finance Minister said presently 80 per cent of goods attract 12.5 per cent of Central excise duty while at the state level 55 per cent of items are charged with 14.5 per cent VAT or sales tax. The weighted average of the two in 65 per cent of the items comes to 27 per cent. Adding cess, octroi and entry tax takes the figure to 30 per cent, he said. In deciding the GST rate, "we are guided by two factors -- 27 percent is too high, it is inflationary, it costs the people, so it should come down... the second they said we will collect what is essential for our present revenue requirement," he said. The GST, he said, will make the system more efficient, increase tax compliance and tax avoidance will become more difficult as it will be detected at some stage or the other. Also, there will be no cascading effect of tax on tax, he said adding there are certain items which will either attract lower rate of tax or no tax at all. Ruling out GST impacting inflation, Jaitley said 54 per cent of goods in the basket used to calculate consumer price inflation are tax exempt and another 32 per cent attract low rate of tax. Only 15 per cent are taxed at standard rate. The Goods and Service Tax (GST), which was first proposed a decade back, is seen as potentially transformative for India's economy, adding as much as 2 percentage points to the GDP while also improving the ease of doing business and encourage investment in manufacturing. It is also expected to result in greater tax compliance, boosting government revenues. The GST will replace more than a dozen levies central and state levies, including central excise duty, service tax and central sales tax as well as VAT on sale of goods and entry tax, to make movement of goods seamless across 1.3 billion markets. Instead of the good being taxed multiple times at different rates, under the new GST regime goods would be taxed at point of consumption. The opposition-dominated Upper House approved the Bill after the government moved four amendments. These included one on scrapping of the proposed tax of up to 1 per cent on inter-state transactions to compensate manufacturing states and another one promising to compensate states for any revenue loss in first five years of GST implementation.