India Cabinet Clears GST Constitutional Bill

The Indian government has finally cleared the GST Constitutional Amendment Bill for its tabling in the current session of Parliament.

The Cabinet on Wednesday approved the bill as it races against time to keep the April 2016 deadline to usher in the nearly all-encompassing indirect tax that will unify markets and avoid tax cascades.

Although states have not said it in so many words, on many contentious issues, the Centre could get them agree after a series of confabulations over the past week. The Centre’s decision to table the Bill that seeks to allow it to tax transactions beyond the first point of sale of goods at the factory gate and states to tax services is also seen as a persuasive tactic.

The Constitution 122nd Amendment Bill requires to be passed by both houses of Parliament (with votes of two-thirds of the members present) and half the state legislatures.

The Bill, as cleared by the Cabinet, doesn’t exclude petroleum products from the purview of GST, but the Centre may agree to keep them out for an initial three to four years to address states’ concerns. Eventually, taxes on petroleum products — which account for roughly a third of the combined indirect tax revenues of the Centre and states — will also collapse into GST. Entry taxes are subsumed in GST while, according to the Bill, alcohol and tobacco are excluded.

The proposed GST council with which crucial powers like inclusion/exclusion of items and rates of tax will be vested will have statutory backing. The Centre retains veto power in the GST council, although it represents one-third of the quorum.

The Bill also provides compensation for any revenue loss to states post GST roll-out, a move to boost the confidence of states in the proposed regime. GST, which subsumes all major indirect taxes except basic customs duty, will have two components: Central GST and state GST. It will apply on all commercial transactions by businesses with an annual turnover of Rs 10 lakh and above.