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Historic Tax Reform: RS Passes GST Constitutional Amendment Bill

Law minister Ravi Shankar Prasad celebrates the passing of GST Bill with Finance Minister Arun Jaitley, Ananth Kumar and Piyush Goyal. (Picture courtesy: Twitter)

Law minister Ravi Shankar Prasad celebrates the passing of GST Bill with Finance Minister Arun Jaitley, Ananth Kumar and Piyush Goyal. (Picture courtesy: Twitter)

The Constitution (122nd Amendment) Bill, 2014 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.

New Delhi: The Rajya Sabha on Wednesday night passed the bill to amend the Constitution to facilitate the historic GST after the government's assurance that the tax rates would be kept "reasonable".

The Goods and Services Tax Amendment Bill was passed after a seven-hour debate in the Upper House, during which the Congress led by former finance minister P Chidambaram tried to corner the government with two demands - that there should be a cap on the standard GST rate at 8%, and that IGST and CGST Bills will not be passed as money bills but as financial bills.

Finance Minister Arun Jaitley nimbly sidestepped the demand saying he would strive for a "reasonable" GST rate. he also argued that the government cannot give any commitment on the nature of bills that are not yet been drafted.

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. It will now go back to the Lower House to incorporate the amendments approved by the Rajya Sabha.

The bill will also have to be approved by 50 per cent of all the state assemblies.

AIADMK was the only party to oppose the measure and its members staged a walkout from the House to register their unhappiness over the bill which lays the ground for rollout of uniform Goods and Services Tax (GST) regime that will subsume all indirect taxes including central excise duty and state VAT/sales tax.

The easy passage was facilitated after the main opposition party Congress, which had been stalling the measure for over two years, came on board after the government made about six changes in the bill, including scrapping of 1 per cent manufacturing tax and incorporate clearer provisions for compensating states for revenue loss for five years.

Finance Minister Arun Jaitley addresses the media.

Replying to the debate during which most parties pressed for a Constitutional cap on GST tax rate at 18 per cent, Finance Minister Arun Jaitley said the guiding principle would be to keep the "rates as low as possible, certainly lower than what it is today."

The Goods and Service Tax (GST), which was first proposed a decade back, is seen as potentially transformative for India's economy, adding as much as 2 percentage points to the GDP while also improving the ease of doing business and encourage investment in manufacturing.

It is also expected to result in greater tax compliance, boosting government revenues.

The GST will replace more than a dozen levies central and state levies, including central excise duty, service tax and central sales tax as well as VAT on sale of goods and entry tax, to make movement of goods seamless across 1.3 billion market. Instead of the good being taxed multiple times at different rates, under the new GST regime goods would be taxed at point of consumption.

The Bill passed on Wednesday will create a GST Council comprising Union Finance Minister and his counterparts from the states.

This body will determine the final rate.

The Constitution (122nd Amendment) Bill, 2014, that would lay the ground for roll out of Goods and Services Tax (GST) regime, was passed by the opposition-dominated Upper House after the government moved four amendments.

These included one on scrapping of the proposed tax of up to 1 per cent on inter-state transactions to compensate manufacturing states and another one promising to compensate states for any revenue loss in first five years of GST implementation.

The other amendments pertained to a new formulation on a dispute-resolution mechanism and an endorsement of the resolution by the empowered committee of state finance ministers on a revenue-neutral rate to bring down the incidence of tax on the common man while protecting revenues of states.

During the debate former finance minister and Congress leader P Chidambaram reiterated party's demand to keep GST rate below 18 per cent and asked government to specify its stand on the issue while including the rate in the subsequent GST bill. He also asked the Government not to convert the subsequent GST laws into money bills to bypass Rajya Sabha.

Former finance minister and Congress leader P Chidambaram coming out of the Parliament.

Money bills do not require approval of the Upper House and their mere passage in the Lok Sabha, where the ruling NDA has absolute majority, is enough for converting it into a law.

His twin demands found favour with other opposition leaders including Sitaram Yechury (CPIM), Naresh Agarwal (SP). AIADMK was the only party which opposed the GST in totality.

With PTI Inputs.