NEW DELHI: India moved a significant step closer to the most comprehensive reform of its indirect tax structure. The Union Cabinet on Wednesday approved amendments to the constitutional amendment Bill, needed to make the goods & services tax a reality, incorporating suggestions by states.
The legislation will be taken up in Rajya Sabha, probably next week, two top government sources said. The Cabinet also cleared an increase in FDI limit for lone entities in bourses to 15 per cent from 5 per cent. Moving quickly after thrashing out details with the states on Tuesday, the Cabinet on Wednesday approved changes to the Bill to reflect the consensus.
The GST Bill has been stuck in the Upper House due to Opposition resistance.
The government has accepted a key demand of Congress — to remove a 1 per cent tax on inter-state transactions. The levy had also not found favour with the parliamentary select committee on the Bill. It’s also agreed that states will get a full five years of compensation for any revenue loss.
It is likely to further assuage Congress concerns by providing legal ring-fencing on tax rates by including them in the proposed GST law.
The government wants to roll out GST on April 1, 2017, seven years later than originally scheduled. It has reached out to like-minded parties and also to All India Anna Dravida Munnetra Kazhagam (AIADMK), which has voiced worries, a government source said.
“The government has accepted the demand to drop 1 per cent inter-state tax and they are also ready to have the rate in GST Act, so the party should not have a problem in extending support,” a senior Congress functionary told ET.
GST will replace multiple levies, creating a single national market by breaking down state boundaries and is expected to lift GDP by as much as 1percentage point.
“It’s one step closer to passage of the Constitution amendment Bill,” said R Muralidharan, senior director at Deloitte.
Harishankar Subramanian, national leader at EY for indirect tax, agreed. “The Cabinet’s clearance of crucial amendments in the Constitution amendment Bill will pave the way for political consensus and early passage of Bill in the monsoon session.”
Bill may be moved next week The government may move the amendment Bill in Parliament next week. The Business Advisory Committee has allocated five hours for a discussion on the matter.
States had on Tuesday backed the Centre’s stance on capping the tax rate in the Constitution and creating a dispute-resolution mechanism within the GST Council, a joint body of the states and the Centre.
They backed removing the 1 per cent inter-state tax from the Bill, a demand that has been accepted by the government.
In return, the government has agreed to their demand of full compensation for revenue loss for five years. The original Bill provided for a graded compensation of 100 per cent for the first three years, then 75 per cent and 50 per cent for the next two years, respectively.
The constitutional amendment Bill is crucial to GST as it will allow states to tax services and the Centre to impose levies on goods at the retail level. The Bill is stuck in the Rajya Sabha as the ruling coalition does not enjoy a majority there and Congress had put forward conditions for its support.
As a constitutional amendment Bill, it has to be passed not just by a two-thirds majority in the Upper House but also ratified by 50 per cent of state assemblies.
The constitutional amendment will allow the creation of the GST Council chaired by the union finance minister with state finance ministers as members. This council will finalise the revenue-neutral rate, a list of exempted items and, if it deems fit, a separate dispute-resolution mechanism.
Long road ahead Work has to be expedited on three key items of legislation to prepare for the levy — the central GST law, integrated GST law and state GST laws.
The Centre will have to get the central and integrated GST laws cleared while states will have to get their GST laws ready well in time for the 2017 start date.
The Centre has already unveiled a model GST law and is expected to fine tune this in line with stakeholder comments. It will have discussions with the states on a revenue-neutral rate as also the sharing of tax administration between them.
Work is already underway on the technology backbone, the Goods & Services Tax Network. GST has been pending since 2010 for lack of consensus among states.
Foreign investment limit in stock exchanges In the February Budget, the government had announced its intention to raise foreign investment in stock exchanges to 15 per cent from 5 per cent on par with domestic institutions.
“This will enhance global competitiveness of Indian stock exchanges and accelerate adoption of best-in-class technology and global market practices,” Finance Minister Arun Jaitley had said in his Budget speech.
The Union Cabinet approved the proposal on Wednesday.
This will enhance the appeal of initial public offers of stock exchanges such as the Bombay Stock Exchange and the National Stock Exchange.
Credits ET Realty