Finance ministers from India's 29 states put their heads together on Tuesday raising hopes of the Goods and Services Tax (GST) Bill, India's biggest indirect tax reform since the independence, getting passed in the ongoing session of Parliament.
The bill seeks to replace a slew of central and local taxes (indirect) with a single unified tax structure and also create one common national market.
With a potential to boost the GDP of the country by 3 percent, an in-principle consensus on such a tax structure already exists. However, the stalemate on its approval continues amid issues such as the actual tax rate, dispute resolution mechanism and the extent to which the Centre is allowed to tax businesses in different states.
Here is the top 4 issues the Empowered Committee of State Finance Ministers agreed to on Tuesday:
Tax Rate: The committee decided neither to mention any rate of tax within the constitutional amendment bill nor even to cap it with any preset number â€” writing off a key Congress demand to constitutionally cap it at 18 percent. Instead, members agreed to keep the tax rate as a part of the GST Bill or the GST Act, helping to arrive at a number soon. It also decided to do away with another proposal of levying 1 percent additional tax for inter-state trade of goods (aimed to help manufacturing states).
Revenue Neutral Rate (RNR): The empowered committee agreed to keep away from India's chief economic adviser (CEA)-recommended RNR of 15 to 15.5 percent. The RNR, which makes sure no loss is incurred by either states or the Centre when applying the GST, was sought to be replaced with another rate or structure. Without explicitly saying what the structure was, the chief of the committee, Amit Mitra, said a "wording" would be worked out that could reduce the effective tax burden on the common man and at the same time protect the existing revenues of the Union and the states.
Dual Control: The group unanimously declared there would be no dual control by the Centre and states on small businesses with a turnover lesser than Rs. 1.5 crore. However, firms earning over Rs. 1.5 crore will experience a dual control between both the Centre and the state, which will smooth consistent collaboration for revenue generation, said Mitra.
Dispute Resolution: The GST Council, a group headed by Union finance minister with all state finance ministers being its members, was decided as the final dispute resolution body. On the key question of revenue loss that could emerge out of implementing the GST, Mitra said another "wording" that guarantees five years of compensation was worked out to the satisfaction of most member states.
With top four concerns of states addressed, the ruling BJP-led National Democratic Alliance (NDA) could now rally support of non-Congress members in the Rajya Sabha (the Upper House). For nearly nine months since the bill was passed in the Lok Sabha, it awaits introduction in the Upper House where the BJP does not have a majority.
States have also been promised to remain free from any pressure to decide on rates and other modalities in the GST Bill, after the Constitution Amendment Bill is cleared by Parliament.