The Cabinet on Wednesday approved amendments to the goods and services tax (GST) Bill to compensate states for revenue loss for five years once the new nationwide uniform tax regime kicks in.
The Union Cabinet agreed to the recommendation made by the select committee of the Rajya Sabha on compensation to states to win over support of parties like Trinamool Congress and Biju Janata Dal in getting the landmark Constitution amendment approved by the upper House, where the government does not have majority. According to sources, the Cabinet decided that the modalities for levy of one-per cent tax over and above the GST rate by states as well as the 'band' rate would be finalised while framing the rules. GST will ensure a single tax structure for goods and services throughout the country and make India a common market.
The new indirect tax regime will subsume excise, service tax and other local levies. The Rajya Sabha select committee, headed by Bharatiya Janata Party's Bhupender Yadav, in its report last week had suggested GST rate to be no more than 20 per cent and levy of one per cent additional tax by states only on actual sales and not on inter-company stock or inventory transfer.
The Constitution Amendment Bill for GST, to replace all indirect taxes like excise and sales tax levied by states on all products, except alcohol, has already been passed by the Lok Sabha and is pending passage in the Upper House. The amendment approved by the Cabinet seeks to give an assurance to states for making up for revenue loss they may suffer in first five years of introduction of GST.
The government plans to roll out GST from April 1, 2016, and faces a stiff deadline as the Bill has to be approved by the Rajya Sabha and half of the 30 states. The committee had also suggested that the proposal should provide an option to state governments to levy additional taxes within the band on specified goods and services to raise additional resources to meet local needs.
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