Bringing a conclusion to ten year struggle, BJP has finally managed to pass the Goods and Services Tax (GST) Bill on Wednesday in Rajya Sabha.
Passing the GST had been a mean feat of BJP as it had to bring together all the parities on the floor for the approval. The party has been trying to get passed the Bill which will make all the various taxes like excise, value added tax, octroi and sales tax redundant and bring it under one umbrella, since it came to power in 2014. As the bill was a Constitutional amendment it required the approval of at least one third of the members present. The bill got the support from 203 members in the House. Lok Sabha had already passed the Bill earlier, but it was stuck in the Upper House for the lack of enough majority to support it.
Congratulating the Members of Parliament and the nation for the amendment of the Bill, Mr. Modi said, “This reform will promote Make in India, help exports and thus boost employment while providing enhanced revenue. I would like to add that GST will also be the best example of cooperative federalism. Together we will take India to new heights of progress… We continue to work with all parties and states to introduce a system that benefits all Indians and promotes a vibrant and unified national market.”
While remarking that the Bill has brought all the members together, Finance Minister Arun Jaitley remarked, “GST is one of the most significant tax reforms in the history of India”. “The merits of the system itself are that it will convert India into one uniform economic market with a uniform tax Rate, bring about seamless transfer of goods and services across the country, enable us to check evasion and, therefore, enlarge revenue, as far as the Centre and the states are concerned. Many economists and analysts believe this will also give a boost as far as growth rates in the country are concerned,” he added.
The amendment of the Bill was mainly stalled by the Opposition, Congress which insisted upon several key changes in it before it could be brought to the table. Earlier, in 2006 Congress led-UPA government of Manmohan Singh had proposed the idea first, before it was introduced as fully fledged Bill in 2011. The Bill couldn’t be passed. BJP had to rework a lot before the Opposition agreed to pass it. Last week among other changes it made the additional 1 percent tax redundant and agreed to compensate the states for their revenue loss for next five years. The objection raised by the Congress against the Bill is that the standard rate of GST has not been specified. Currently, the agreed standard GST is at 18 percent.
Congress leader P Chidambaram and the former union finance minister said that the reason the standard rate of GST has not been specified is because the Center is perhaps planning on higher rate. Because GST is indirect tax, the higher GST rate will invite people’s wrath. “GST is an indirect tax. An indirect tax, by definition, is a regressive tax. Any indirect tax falls equally on the rich and the poor… that is why, the world over, the trend is to keep indirect taxes as low as possible… the taxes that fall more on the rich and less on the poor are income tax and corporate tax. Those are the taxes which must be the principal source of revenue for the government,” he said.
He also said that the party is trying to set a ceiling rate for GST or at the very least to enable the legislation such that the approval of the Parliament has to be sought before the rate can be increased. “Today, the excise duty can be changed by the whims of the executive… customs duties are changed by the whims of the executive. But the income tax is not changed by the whims of the executive because it is enshrined in law… A rate must only be changed with the approval of Parliament,” Chidambaram said. Further he said, “In the name of the people, I ask you to keep this rate at the rate recommended by your CEA (Chief Economic Advisor), namely, the standard rate should not exceed 18 per cent. I know you are not incorporating it in the Constitutional amendment Bill… but three months later, when you come back with the GST Bill (another enabling legislation), you must mention a tax rate.”
Goods and Services Tax which will be under the category of indirect tax will have diverse affect on the sectors. While GST will possibly boost some, it will negatively impact other sectors. According to one of the known finance critic GST will be positive for automobile sector (two-wheeler and four-wheeler), logistics, multiplex, light electrical, electronic, media and cement sectors while it will hit the cigarette manufacturers, telecommunications, pharmaceutical sectors etc.
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