New Delhi, May 6 (PTI): The Lok Sabha on Wednesday gave its consent to a far-reaching amendment to the constitution to pave the way for a pan-India goods and services tax regime and create a unified market across the country, doing away with multiplicity of central and state levies.

The Constitution (One Hundred and Twenty Second Amendment) Bill, 2014, was passed by a division with 336 ayes, 11 against and 10 abstentions. Lok Sabha Speaker Sumitra Mahajan announced the bill was approved with two-thirds majority of the house, as required.

Earlier, replying to the debate on the amendment bill, Finance Minister Arun Jaitley refuted opposition claims that the government was pushing through some amendments to some provisions without taking the house into confidence and refusing to send it to a parliamentary panel.

The finance minister said the same recommendations of the parliamentary panel, when the original bill was referred to it, were incorporated in the amended version and that the opposition had no reason to fault the government on this count.

One such amendment, he cited as an example, was to set up a goods and services tax council, with representations from the central and the state governments, to oversee any dispute, rather than leave it to a panel led by a retired Supreme Court judge.

Jaitley also warned that referring the amendment bill back to the relevant Standing Committee of Parliament would result in missing the target date for its implementation from April 1 next year, despite the broad consensus that had already been achieved after extensive consultations.

The constitutional amendment bill needs to be passed by a two-third majority in both houses of parliament and by the legislatures of half of the states in the country to become a law.

The main purpose of the bill is a unified regime that will subsume most indirect taxes levied by the central and state governments such as excise duty, service tax, value added tax, sales tax and octroi to facilitate a common market across the country.

"There would be more no tax on tax," the finance minister said referring to how these levies were leading to duplication, escalating the final price paid by customers, stoking inflation, standing in the way of efficient supply chains and preventing economies of scale.

He also mentioned that the union cabinet has recently approved payment of compensation to states for the loss they would incur on account of a cut in the central sales tax from four percent to two percent. This payment will be made for five years.
Finance ministry officials said preliminary estimates indicated that Rs.33,000 crore can be the amount payable to states and union territories for the entire period, and settling these claims will help create an enabling environment for rollout of the new regime.

The Lok Sabha approved a government amendment to help further states in the transition phase, by levying an additional tax of one percent on inter-state trade on goods. Like in the original bill, petroleum products, alcohol and tobacco were kept out of its purview till later.

Seeking to address states' concerns, the Finance Minister said they will be compensated by the Centre for five years.

"Our clear understanding with the states is, in a tapering manner the losses incurred by the states will be fully compensated for five years," he said.

As per the GST structure, 100 per cent compensation would be provided for first three years, 75 per cent for fourth year and 50 per cent for the fifth year.

AIADMK leader M Thambidurai, who is Deputy Speaker of the House, questioned what will happen if states lose revenue even after five years and wanted a guarantee in the proposed Act to compensate.

To this, Jaitley said GST Council will consider all such issues and the Centre will under-write the loss.

He said concerns of both manufacturing states like Maharashtra, Tamil Nadu and Gujarat, and other consuming states have been taken into account and states would stand to gain by implementation of GST.

The new measure will also benefit mineral-producing states as well, Jaitley said after members from Odisha questioned about the fate of their states.

Responding to members' concerns that 27 per cent revenue-neutral tax rate for GST as proposed by an expert panel would fuel inflation, Jaitley said, "A 27 per cent RNR will be too high... Government or GST Council has not decided on the rate... This figure is going to be much diluted."

The reform of the indirect taxation was initiated by the Kelkar Committee in 2003 following which the UPA government in 2006 proposed a GST. The Bill had initially been brought in 2011.

Questioning opposition by Congress to the bill, Jaitley recalled that Chidambaram had been pushing it earlier.

To this, Congress leader Veerappa Moily said this was not a matter between two Finance Ministers.

Hitting back, Jaitley said, "you may have disowned all of your Finance Ministers, but the country cannot".

"It is only erroneous to take GST as a UPA-NDA issue. GST is a Centre and state issue," he said.

Asserting that the government is committed to cooperative federalism, Jaitley said "Federalism means strong states but it doesn't mean a weak Centre." He was responding when some members questioned why the Centre should have a veto power in voting GST Council even while having 1/3rd weightage in voting.

As states demanded that the voting power of the states in the GST Council be increased from two-third at present, he said "India is a Union of States. What you are suggesting ... the consequence would be so immense.. The Centre and states will have to work together to reach a consensus".

GST, which has been pending since 2006, will be the biggest indirect tax reform since 1947. The Constitution Amendment Bill on GST was introduced in the Lok Sabha in December 2014.

Once GST is implemented, the Centre and states will have concurrent power to levy tax on goods and services.

"I do not foresee any state incurring a loss and the Constitution Amendment Bill provides that they would be compensated for five years," Jaitley said.

To address the concerns of states on account of transition to a new indirect tax regime the Centre has allowed states to levy 1 per cent additional tax on inter-state trade for a period of two years.

Besides, petroleum and petroleum products would not come under the GST levy till a date recommended by the GST Council.

Once GST is implemented, the Centre and states will have concurrent power to levy tax on goods and services.

Jaitley said once the Centre doled out a package which includes 5 year compensation, 1 per cent additional tax and non taxation of petroleum products, the manufacturing states came on board.

The proposed GST Council will have Union Finance Minister as its Chairman and comprise two-third of members from states and one-third from the Centre. The decision of GST Council will have will need to be approved by a three-fourth majority.

"Necessarily cooperative federalism would be at play.. To reach three-fourth both Centre and states would have to work together," he said.

As regards a proposed Revenue Neutral Rate (RNR) for GST at 27 per cent, Jaitley said: "I straightaway concede that 27 per cent would be very high".

He said the 13th Finance Commission had suggested 18 per cent as a possible figure and hence the rate would have to be worked out.

RNR is the rate at which there will be no revenue loss to the states after GST implementation. The RNR for GST is under consideration and a final view on this would be taken by the GST Council.