Cabinet clears GST Bill, may be presented in Parl soon

GST compensation is a part of the GST Constitutional Amendment Bill. Petroleum products, which will initially be kept at a nil rate, and entry tax too are a part of the Amendment Bill for GST. Tobacco has also been included in the GST ambit, but not alcohol.

A tapering mechanism for compensation in the GST Bill has also been finalized. States will get compensation for five years and can levy 1 percent entry tax for two years from the date of rollout.

According to the broad contours of the Bill, the GST council which will be chaired by Finance Minister Arun Jaitley will have all the other state government as its members and three-fourth of the members will have to be present in voting for decisions to be taken. The Centre will have one-third share in voting and two-third for state governments.

Sachin Menon, COO tax and head of indirect tax, KPMG says India can’t have a perfect GST given the demographic situation and the peculiar federal structure. However, this Bill will most definitely improve the ease of doing business.

Amit Kumar Sarkar of Grant Thornton says subsuming entry tax into GST process that intent of the government is good, while adding that it is a significant fiscal reform from the new government.

Below is the verbatim transcript of Sachin Menon, Bipin Sapra and Amit Kumar Sarkar’s interview with CNBC-TV18’s Shereen Bhan.

Q: The Goods and Service Tax (GST) Constitutional Amendment Bill has been cleared by the cabinet paving the way for the bill to make its way to the winter session of parliament, your first reactions?

Menon: I am very happy to hear this news. This is a moment in the history for the Indian government. I am sure that this is going to help India to be elevated to the economic powerhouse that it is predicted to be and it also would open up a common market for India and it would also ease doing business in India and I am really excited to hear this.

Q: Do you believe that this is a half baked Bill, this is an ideal Bill that is being taken to Parliament?

Menon: Given the demographics and the equations within India as a federation I don’t think that we are going to have a perfect GST bill ever, especially this dual GST regime which is first time experimenting in the world in any of the countries for that matter. So for that matter there has to be some kind of compromise in some of the issues without which I don’t think that you will ever have a GST. So, if you are waiting for a perfect house it may not be practical.

So given the circumstances there is a fair understanding about keeping the entry tags within the GST and the petroleum products for that matter. So, I would imagine that this is perhaps the best possible way which we can address this conflict between the state and Centre.

Q: The Cabinet giving its approval to the GST Constitutional Amendment Bill which means that in this session of parliament which ends on December 24 we could perhaps see the government tabling this. What do you make of it, the broad contours as we have been reporting petro products, entry tax to be subsumed into the GST, alcohol and tobacco will be out of GST and of course the compensation mechanism will still be worked out?

Sarkar: If you look at the way in which the GST amendment discussions have happened, one thing for sure is that this is obviously going to be a significant fiscal reform from the current government and that is the most important takeaway for all of us sitting over here absorbing the development.

The second is each of the points that you right now mentioned, the biggest point over here is the fact that entry tax is going to be subsumed. That is a big decision that has happened. The state governments have shown that they are also actively supporting the entire introduction of the bill which I personally believe is a very interesting development. Of course once we see the text of the bill and we see how it actually gets passed in the Parliament a lot of other finer details may come through, but just this one point shows that the intent is good and the consensus is different.

Q: The estimation is that the rate could initially be very high, the 20 plus kind of region, perhaps even between 25 and perhaps even higher. A quick take as far as the GST rate itself is concerned even though as I am pointing out it is not part of the Bill?

Sarkar: If you look at the rate discussion that is happening and again the devil is in the detail obviously but any rate of GST which is going to be above 20 or 22 percent will obviously be something that the broader industry would be frowning upon because it comes very close to the simple arithmetic of just adding the excise rate and the VAT rate that is applicable in India today. The expectation was that one of the benefits of GST would be to remove the tax on tax getting effect which means a 22 percent rate should have been sufficient but if it goes beyond 22 percent then I am sure a lot of people would start wondering what could be the exact reason why the rate has gone up.

Q: Your first reaction on the fact that the Cabinet has cleared the Constitutional Amendment Bill for the GST paving the way to make it to Parliament this session?

Sapra: It was long overdue. I am really happy that this has gone through and it will be really great for the entire industry and the country that this bill has finally seen the light of the day. Once it has passed it will be the right step in the right direction.

Q: The fact that now it is going to perhaps make its way to the Parliament in this session itself, do you believe that April 2016 deadline can be met?

Sapra: I would assume so because once this Bill has been introduced in the Parliament now we should be able to clear it at least in the Parliament in the Budget session and then this goes to the states for clearance but in the interim the law can go on in full earnest. So, my view would be April 1, 2016 is definitely on.

The article appeared on Moneycontrol.com. The article can be found here.