India gets one tax: Goods and Services Tax Bill passed in Rajya Sabha

New Delhi: After nearly 60 years, the Goods and Services Tax, one of the major reforms in the country’s indirect tax structure, finally became a reality on Wednesday. This was a major victory for the Modi government, particularly finance minister Arun Jaitley.

The Rajya Sabha on Wednesday passed the Constitution (122nd Ame-ndment) Bill, 2014, 203-0 paving the way for the subsequent Bills — Cen-tral GST and Inter-state GST Bill — be taken up.

The GST, referred to as the “most far-reaching reform since Indepen-dence”, was passed after the finance minister assured the Rajya Sabha that the government was “not averse” to a debate on future legislations relating to the GST Bill in the Upper House in the Winter Session.

On the Congress demand for an 18-per cent cap, Mr Jaitley said “the guiding principles would be to keep the rates as low as possible, certainly lower than what it is today.”

Time for fiscal reforms 2.0
The Prime Minister, Mr Narendra Modi hailed the passage of the Constitution aamendments Bill and describing this as a historic occasion, thanked the parties.
The Bill was approved by the Upper House with 203 votes in favour and none against, after a seven-hour debate during which a rare bonhomie was witnessed among the ruling and the Opposition parties.

Six official amendments, including scrapping of one per cent additional tax, moved by the government were approved with cent per cent votes. The Bill was passed by  the Lok Sabha earlier but will again go back to the Lower House to incorporate the amendments approved by the Rajya Sabha.

After this the CGST and IGST bills, which will be drafted by the Empowered Committee of state Finance Ministers, will be introduced in Parliament during the Winter Session. In his reply, the Finance Minister, Mr Jaitley assured the House that the government would keep the GST rate “as low as possible”.

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He did not make any commitment whatsoever about any specific rate despite Opposition Benches pressing for it. “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,” he said.

Mr Jaitley said that the tax rate would be decided by the GST Council comprising Union Finance Minister and representatives of all 29 states. He told the House that “we must trust the sense of responsibility of the states.”

Mr Jaitley maintained that 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. The fianance minister said that the GST “will make the system more efficient.” He pointed out that “tax avoidance will become more difficult.” 

Mr Jaitley told the House that “there will be no cascading effect of tax on tax.”  He said that “there are certain items which will either attract lower rate of tax or no tax at all.” The finance minister also ruled out that  GST would impact inflation.

Why GST?
There was a burden of ‘tax on tax’ in the pre-existing Central excise duty of the Government of India and sales tax system of the state governments.
The GST will not only include comprehensively more indirect Central taxes and integrate goods and services taxes for set-off relief, but also capture certain value addition in the distributive trade.

What is GST?
GST is one indirect tax for the whole nation, which will make India one unified common market. It will subsume central excise duty, additional excise duty, service tax, additional customs duty commonly known as countervailing duty, and special additional duty of customs at the Central level.