GST Debate | GST Exceeding 18% Will Be Inflationary, Says Former FM P Chidambaram

Union Finance Minister Arun Jaitley on Wednesday (03 August) tabled the GST Constitutional Amendment Bill in the Rajya Sabha, kicking off a scheduled five-hour debate on the landmark tax reform.

Speaking on the GST Bill, former Finance Minister P Chidambaram reaffirmed that the Congress party was "not opposed to the idea of GST", and called it one of the "most reformative tax measures".

"If we pass, it will be on the basis of a serious debate. It is far too important a legislation to be passed on a partisan basis," Chidambaram said while participating in the debate on the bill in the Rajya Sabha.

The Congress leader said that the idea of the GST Bill was floated by the previous United Progressive Alliance (UPA) government in 2005.

However, he pointed out that the current Amendment bill was clumsily drafted.

The former finnance minister told the House that a GST rate exceeding 18 per cent would be inflationary in nature.

He said there is a need for garnering support for an 18 per cent standard GST rate, for which, he will soon start a nation-wide campaign for a consensus. The above 18 per cent tax rate will not serve the government's purpose of tax reforms, he added.

Taking a dig at the NDA government, the Congress leader said the government should introduce GST Bill as Finance Bill and not as the Money Bill that does not require approval from majority of the members voting.

"It has taken 11 years (for the bill to be at stage of passing)," Chidambaram said.

The GST legislation, which intends to convert 29 states into a single market through a new indirect tax regime,which replaces a host of taxes such as VAT, sales tax and octroi, was supposed to be introduced from April 1 this year.

Experts are of the view that the passage of the GST bill will shore up Prime Minister Narendra Modi's reform credentials.

Once passed, the GST would be the most significant tax reform since Independence.

Businesses have lobbied hard for the tax, with business lobby the Confederation of Indian Industry (CII) estimating the GST will add 1.5 to 2 percentage points to the annual economic growth rate.

"It is very much in the category of what one would call a big-bang reform," CII president Naushad Forbes said.

The government is keen to get the GST bill approved during this session of Parliament, which ends on August 12. Though the bill was passed by the Lok Sabha in May 2015, it would have to go back to the Lower House to ratify the changes made in the Rajya Sabha.

On Tuesday, Jaitley circulated fresh amendments to the GST constitutional amendment bill, which seeks to scrap a 1 per cent inter-state levy and provides for a compulsory five-year compensation to states for revenue losses as well as a dispute redressal mechanism to be set up by the GST council.

The Congress's demand for a cap of 18 per cent on the GST tax rate will be met through a subordinate legislation at a later date, said officials.

Called the "Amendments to the Constitution (One Hundred and Twenty-Second Amendment) Bill, 2014", the set of changes proposes to delete Clause 18 of the original bill that had promised to compensate manufacturing states for revenue losses with 1 per cent additional duty for a period of two years or more.

It also brings in changes in Clause 19 of the bill dealing with compensation to states and says the states will be compensated for a period of five years or more towards the losses they may suffer because of the shift to the new regime.

To give it a greater specificity, the amendment now says Parliament by law "shall" compensate states as opposed to the earlier choice of the word "may".

The amendments also clarify that the state's share of GST will not form part of the consolidated fund of India. "The amount apportioned to a state shall not form part of the Consolidated Fund of India," the amendment said.