Why India's 'Biggest Tax Reform' GST Is Still Stuck

A roundup of main issues of contention.

19/07/2016 3:09 PM IST | Updated 20/07/2016 4:01 PM IST
Rupak De Chowdhuri / Reuters

It's slated to be India's 'biggest tax reform' that will simplify the web of of taxes across India. Even as the main opposition party Congress has approved a five-hour debate on the Goods and Services Tax (GST) bill, there are several thorny issues and caveats that the BJP and opposition parties are expected to iron out before the bill, which is pending in the Rajya Sabha, is approved. Here are the main roadblocks:

1. Plain politics: There appears to be a deep divide between the Congress party members on whether to support the bill, and plenty of grandstanding. A government source told Business Standard that Congress members in the Rajya Sabha were split between those who were pro-bill and those indifferent to its passage. Other parties have also expressed they might oppose the bill include CPIM, according to media reports. However, Prime Minister Narendra Modi has said that with the exception of the Congress, the government largely has everyone on board, and continues to have discussions with them individually.

2. Conditions and caveats: Congress has asked for three main conditions and tweaks to the bill in its present form. These include: capping the tax rate at 18 per cent; removal of a one per cent additional tax; and setting up of a council to settle disputes. According to media reports, both BJP and Congress may compromise on the cap requirement but need to come up with alternative ways to legally "ring-fence" the cap. BJP has maintained that a hard cap would prove a difficult exercise requiring a constitutional amendment for any future revisions. The government has also agreed to drop the one per cent levy, but is facing a demand from Congress to submit its revised proposals in writing, the Hindu reported.

3. The lost revenue argument: The Communist Party of India (Marxist), CPM, has raised concerns the reform will hamper state government's ability to raise funds as GST is expected to shift away a portion of the tax collection to the federal system. This could impede states' abilities to raise immediate resources in disaster-scenarios as they would become over-reliant on the Centre, CPM has said.

The GST was approved in the Lok Sabha last year. GST is an indirect blanket tax that will subsume several indirect state and federal taxes such as central excise duty, value added tax, service tax, among others.

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