Demand of states accepted partially in the revised GST bill

Dated 6th October, 2014

The government has prepared a revised Constitution Amendment Bill for the Goods and Services Tax that largely accommodates the demands made by states. The government has set a target of 2016 for the launch of the pan-India indirect tax regime.

According to the revised Constitution (115th Amendment) Bill, the “proposal of dispute settlement authority has been dropped as demanded by the states and it has also been agreed to include a floor rate with bands to allow them the freedom to have a high or low rate”, a government official told The Indian Express.

The Cabinet note is being prepared for the Amendment Bill and it should be introduced in the Winter Session of Parliament, the official added. A key demand of states to keep petrol and alcohol outside the purview of the GST has been met partially. The revised Bill brings in petroleum products within the regime to make the tax structure more business-friendly, but has left alcohol out.

Earlier both petroleum and alcohol were kept out of the GST structure. “The states have been demanding that petroleum and alcohol should be kept out. However, in the revised Bill, we have decided to keep petrol under GST while alcohol will continue to be outside its purview. This arrangement will be more GST-friendly,” the official said. The product will be taxed at zero rate and both the states and Centre would continue to levy sales tax, VAT and excise duty respectively, the official added.

The official also said that the revised Bill also includes entry tax in lieu of octroi, which was earlier kept out. “This is important to reduce distortions as much as possible,” the official added.

The government is also looking at the GST as a route to improving the ease of doing business by bringing down the incidence of multiple taxes. The GST aims at subsuming most of the indirect taxes at the Central as well as state level. The UPA government had introduced the Amendment Bill, a necessary condition for introducing the new regime, in 2011.

The idea, mooted in 2006, is pending since due to lack of consensus among states on issues regarding the exemption list, revenue neutral rate, threshold and compensation.