As GST debate started in parliament today, the government and the Congress complimented each other.
Highlights
- GST has been unanimously cleared by Rajya Sabha
- GST is national sales tax, replaces complicated matrix of levies
- GST rate will be decided in close consultation with states
The government and the Congress began the morning by upending tradition with generous compliments for each other in parliament. As the Rajya Sabha geared up to green-light a landmark tax reform, Finance Minister Arun Jaitley thanked the main opposition party for working with him to arrive at an acceptable outline for a national Goods and Services Tax or GST.
"I am grateful to leader of the Opposition Ghulam Nabi Azad," the Finance Minister said, acknowledging the veteran Congressman who met him for exhaustive negotiations on the GST bill which replaces a mesh of levies with a national sales tax.
His predecessor as Finance Minister, P Chidambaram, thanked him for a speech he described as "friendly" and with a note of "conciliation".
The goodwill is partly the result of the weight thrown by regional parties behind the GST, which could add up to two percentage points to the economic growth rate according to the government.
The GST was drafted as a proposal by Mr Chidambaram's party when it was in power. But it sought significant changes to the new version prepared by the BJP government, which were accommodated by Mr Jaitley. "GST doesn't only stand for Goods and Services Tax, it also stands for Good Sense Triumphs," Mr Chidambaram said of the revisions.
As the debate on GST entered its final lap after a marathon debate, the good humour remained undissipated despite clear criticism being shared. Mr Jaitley said Mr Chidambaram's description of the government's proposal as "a clumsy draft" was "a little extreme". He also said wrly, "To implement GST is a headache, to be a former finance minister is a luxury."
At the Congress' insistence, the government agreed to remove a 1% tax allowed in the proposal for manufacturing states as their goods crossed the border into other states. Because the GST is applied at the point of consumption, the 1% levy was designed to compensate manufacturing states for a loss in revenue. The Congress said that must be cancelled and now it is the centre that will handle the compensation for five years. The Congress also wanted an independent agency to be set up to handle revenue-sharing disputes between different states, a demand agreed to by the centre.
In return, the Congress agreed that the rate of the GST will not be laid out in the constitution but in separate legislation that will be cleared later first by the centre and then state legislatures.