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GST Bill Debate: Cap GST Tax Rate, Bill Is 'Clumsily Drafted,' Says P Chidambaram

FM Arun Jaitley promises radical reform

03/08/2016 3:38 PM IST | Updated 03/08/2016 4:56 PM IST
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Adnan Abidi / Reuters
India's Former Finance Minister Palaniappan Chidambaram

Congress Leader P Chidambaram and former Finance Minister on Wednesday said the GST tax rate should not exceed 18 per cent and should be kept as low as possible as an indirect tax is a "regressive tax."

"Please remember we are dealing with a regressive tax as it is an indirect tax...it falls equally on the rich and the poor," Chidambaram said addressing the Rajya Sabha. "That is why the world over, it is deemed as a regressive tax, and the trend is to keep it as low as possible."

He also urged the government that any revisions in the GST tax rates should be up to approval of both houses of the Parliament, with some flexibility given to the Centre. He noted that in high-income countries, the average tax rate was 16.8 per cent while in emerging economies like India, it was an average 14.1 per cent.

"The final GST tax rate should not be changed by the whim of the executive...rate should only be changed with the will of the Parliament," said Chidambaram, adding he wanted an assurance from the government that the bill is brought as a financial bill, and not a money bill.

Additionally, he emphasised that revenues from GST should go into a consolidated fund of India, or a consolidated state fund.

He also said the bill had some "exquisite pieces of clumsy drafting" and the draft amendments in the bill still leave questions unanswered -- such as how to avoid double counting, he said, adding he was "happy" the additional levy of one per cent tax, which would have led to multiple taxes, has been scrapped.

He also called on the government to strengthen the dispute resolution mechanism within the GST Council, and asked for the setting up an authority immediately.

Chidambaram noted the Congress party was never opposed to the idea of GST, and, in fact, brought the original bill to the Parliament 11 years ago.

"That debate has gone on for several years. Just like the GST bill was opposed by parties earlier, including BJP," he said. "Similarly a need for a more perfect bill was felt."

He, however, acknowledged the serious engagement undertaken by the government to involve discussions with all the parties and states, adding that a "far-reaching, revolutionary" change in tax couldn't have been passed as a purely partisan bill.

If it is passed, "it will be on the basis of serious debate," he said.

Radical reform

Earlier, seeking final nod from Rajya Sabha members on the pending GST Bill, Union Finance Minister Arun Jaitley reiterated the proposed uniform GST tax will "radically change" the tax structure of the country, conducive to a modern economy.

Addressing the Rajya Sabha, he highlighted the benefits of the GST bill such as pooling states sovereignty, seamless transport goods across the country, reduce multiple taxes, check tax evasion, and enhance revenues for all states, and bring an equitable tax in consuming states.

"The enactment of GST will bring about the best economic management of the country," said Jaitley.

He noted that a large consensus was needed to reach this point, which followed extensive consultations with state finance ministers and leaders of various political parties, and state ministers to finalise the language and spirit of the legislation.

The GST tax will subsume various central and state taxes into a uniform GST with the exception of alcohol and petrol products. Fuel products may subsequently fall into GST, once the GST Council approves that provision, he said. The GST council will also set up a dispute redressal authority to settle any conflicts among states.

Jaitley said the government is yet to work out "various modalities" including the final taxation structure. He added the IT backbone needed for its implementation is at "reasonably advanced" stages.

Here are some comments that were made by other Rajya Sabha MPs during the debate:

MP Derek O'Brien noted that people were tired of the political 'ping-pong' between Congress and BJP on the GST bill, and termed the tax "Girgit Samjhauta Tax." He added that Jaitley had changed his position on the bill depending on which side of the aisle he stood. He also called out Chidambaram and said that for Congress, the bill was equivalent to "Go Slow Tactics."

A Navneethakrishnan of AIADMK said GST will hurt many state revenues, particularly manufacturing-heavy states. He said Tamil Nadu being a manufacturing state stands to lose Rs 9270 crores if GST is implemented.

Sitaram Yechury of CPI(M) said a high GST tax rate will "economically cripple" the majority of Indians, as well as alter the federal structure of the constitution. He added the Kerala 'fat tax' will have to be abolished under the GST regime.

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