Yesterday, the government circulated certain official amendments to the Constitution (122nd Amendment) Bill, 2014 on GST. The Bill is currently pending in Rajya Sabha. The Bill was introduced and passed in Lok Sabha in May 2015. It was then referred to a Select Committee of Rajya Sabha which submitted its report in July 2015. With the Bill listed for passage this week, we explain key provisions in the Bill, and the amendments proposed. What is the GST? Currently, indirect taxes are imposed on goods and services. These include excise duty, sales tax, service tax, octroi, customs duty etc. Some of these taxes are levied by the centre and some by the states. For taxes imposed by states, the tax rates may vary across different states. Also, goods and services are taxed differently. The Goods and Services Tax (GST) is a value added tax levied across goods and services at the point of consumption. The idea of a GST regime is to subsume most indirect taxes under a single taxation regime. This is expected to help broaden the tax base, increase tax compliance, and reduce economic distortions caused by inter-state variations in taxes. What does the 2014 Bill on GST do? The 2014 Bill amends the Constitution to give concurrent powers to Parliament and state legislatures to levy a Goods and Services tax (GST). This implies that the centre will levy a central GST (CGST), while states will be permitted to levy a state GST (SGST). For goods and services that pass through several states, or imports, the centre will levy another tax, the Integrated GST (IGST). Alcohol for human consumption has been kept out of the purview of GST. Further, GST will be levied on 5 types of petroleum products at a later date, to be decided by the GST Council. The Council is a body comprising of Finance Ministers of the centre and all states (including Delhi and Puducherry). This body will make recommendations in relation to the implementation of GST, including the rates, principles of levy, etc. The Council is also to decide the modalities for resolution of disputes that arise out of its recommendations. States may be given compensation for any revenue losses they may face from the introduction of the GST regime. Such compensation may be provided for a period of up to five years. Further, the centre may levy an additional tax, up to 1%, in the course of interstate trade. The revenues from the levy of this tax will be given to the state from where the good originates. Expert bodies like the Select Committee and the Arvind Subramanian Committee have observed that this provision could lead to cascading of taxes (as tax on tax will be levied).[i] It also distorts the creation of a national market, as a product made in one state and sold in another would be more expensive than one made and sold within the same state. What are the key changes proposed by the 2016 amendments? The amendments propose three key changes to the 2014 Bill. They relate to (i) additional tax up to 1%; (ii) compensation to states; and (iii) dispute resolution by the GST Council.
These amendments will be taken up for discussion with the Bill in Rajya Sabha this week. The Bill requires a special majority for its passage as it is a Constitution Amendment Bill (that is at least 50% majority of the total membership in the House, and 2/3rds majority of all members present and voting). If the Bill is passed with amendments, it will have to be sent back to Lok Sabha for consideration and passage. After its passage in Parliament, at least 50% state legislatures will have to pass resolutions to ratify the Bill. Once the constitutional framework is in place, the centre will have to pass simple laws to levy CGST and IGST. Similarly, all states will have to pass a simple law on SGST. These laws will specify the rates of the GST to be levied, the goods and services that will be included, the threshold of the turnover of businesses to be included, etc. Note that the Arvind Subramanian Committee, set up by the Finance Ministry, recommended the rates of GST that may be levied. The table below details the bands of rates proposed.
| Table 1: Rates of GST recommended by Expert Committee headed by Arvind Subramanian | ||
| Type of rate | Rate | Details |
| Revenue Neutral Rate | 15% | Single rate which maintains revenue at current levels. |
| Standard Rate | 17-18% | Too be applied to most goods and services |
| Lower rates | 12% | To be applied to certain goods consumed by the poor |
| Demerit rate | 40% | To be applied on luxury cars, aerated beverages, paan masala, and tobacco |
| Source: Arvind Subramanian Committee Report (2015) | ||
Several other measures related to the back end infrastructure for registration and reporting of GST, administrative officials related to GST, etc. will also have to be put in place, before GST can be rolled out. [For further details on the full list of amendments, please see here. For other details on the GST Bill, please see here.]
The last few days have seen repeated disruptions in Parliament. In an Opinion Editorial published in the Indian Express, Chakshu Roy of PRS Legislative Research discusses the impact of the current disruptions on Parliament. His analysis points to how disruptions are an opportunity lost to hold the government accountable and to deliberate on significant legislative and policy issues. The second half of the budget session commenced last week with hardly any business transacted due to disruptions on different issues. This is not new. The 15th Lok Sabha has seen entire parliamentary sessions lost without any work being done. As it nears the end of its term, Parliament's productive time stands at 70 per cent, which is significantly lower than that of previous Lok Sabhas. As disruptions in Parliament have become routine, public reaction to such disruptions has also become predictable. Figures depicting the quantum of taxpayers' money lost every hour that Parliament does not function start doing the rounds, and the cry for docking the salary of disrupting members of Parliament becomes louder. What does not get adequate attention is the opportunity lost for holding the government accountable and deliberating on important legislative and policy issues. MPs are required to keep the government in check and oversee its functioning. One of the ways in which they do so is by asking ministers questions about the work done by their ministries. Ministers respond to such questions during the first hour of Parliament, which is known as question hour. During this hour, 20 questions are slotted for oral responses by ministers. Based on the response, MPs can cross-question and corner the minister by asking supplementary questions. On certain occasions, they are also able to extract assurances from the minister to take action on certain issues. When question hour is disrupted, not only are these opportunities lost, it also leads to ineffective scrutiny of the work done by the various ministries of the government. Last week, some of the questions that could not be orally answered related to four-laning of highways, performance of public sector steel companies, supply of food grains for welfare schemes, and generic versions of cancer drugs. In 2012, out of the 146 hours allocated for question hour in both Houses of Parliament, roughly only 57 hours were utilised. Since the beginning of the 15th Lok Sabha in 2009, approximately 43 per cent of the allocated time has been spent on question hour. When Parliament is disrupted regularly, its capacity to make laws is affected. Excluding routine financial legislation, since 2009, the government had planned to introduce 390 bills. So far, it has been able to introduce only 187 of them. It had also planned to have 365 bills scrutinised and passed by Parliament. So far, 96 of them have received parliamentary approval. Disruptions in Parliament also eat into the time available for discussing a bill in the house. In Lok Sabha, roughly 35 per cent of bills were passed with an hour or less of debate, a case being the sexual harassment bill, which was passed by Lok Sabha in September of last year in 16 minutes. Some would argue that since parliamentary committees scrutinise most bills in detail, there is no harm done if the bills are not debated in the House. However scrutiny of a bill behind closed doors is hardly a substitute for spirited debates on the merits and demerits of a bill on the floor of the House. Currently there are 115 bills awaiting parliamentary scrutiny and approval. Important social and economic legislation is currently pending before Parliament. The food security bill, the land acquisition bill, the companies and the goods and services tax bill are just a few of them. Out of the laundry list of pending bills, some are political and may be stuck in Parliament till consensus around them can be built. But there are a number of bills that are administrative in nature, and have no political undercurrents and are possibly not coming up for discussion because of the limited time that is available for legislative debate on account of frequent disruptions. In September 1997, to celebrate the golden jubilee of the country's Independence, a special session of Parliament was convened. At this special session, MPs had resolved to preserve and enhance the dignity of Parliament by adhering to the rules of procedure of Parliament relating to the orderly conduct of parliamentary proceedings. Last year, Parliament completed 60 years since its first sitting. To mark the occasion, another special session of both Houses was convened, where MPs had resolved to uphold the dignity, sanctity and supremacy of Parliament. Ensuring that the proceedings of both Houses run smoothly so that Parliament can discharge its responsibility effectively is the best way of ensuring its supremacy. The question that needs to be asked is whether our members of Parliament are ready to stand by the resolutions that they voluntarily adopted.
