overnment tables GST Bill in Parliament

Union Finance Minister Pranab Mukherjee on Tuesday tabled the Bill aiming at amending some of the tax related constitutional provisions required for implementing the much awaited Goods and Services Tax (GST), the country's most ambitious tax reform yet.

The constitutional amendment would allow states to levy tax on services for the first time. As per the current provision in the constitution, the states cannot tax services while the Union government can also not tax goods beyond the factory gate. Therefore, taxation powers of both the Union government and states will have to be raised to bring them in line with the GST. This will need a constitutional amendment bill to be first passed by the two houses of Parliament and then by at least two-third of state assemblies.

However, the road to implementation of the GST is not very clear so far as there is no complete agreement among states yet. A number of states, particularly the opposition ruled ones, are still firm on their stand that GST in its proposed structure will erode the fiscal autonomy of states, as provided in the Constitution. The Union government has already brought out a fourth revised draft of amendment bill that takes care of some of the issues raised by the states.

For instance, the third draft had proposed setting up a GST Council by the Act of Parliament, instead of President’s order. This was not acceptable to States as it would have resulted in provincial government’s autonomy being at the mercy of Union Parliament in many other situations. In the fourth draft that has been tabled in Parliament, it is proposed to set up a GST Council by Presidential order.

The purpose of the GST is to integrate all the indirect taxes on goods and services at the state and central levels including the value-added tax (VAT), excise and service taxes etc. Since the GST will bring all these taxes under one head, it will be easy to pay and collect taxes resulting in reduced cost of collection and greater compliance. The finance ministry has in a recent study pegged the benefits from GST in terms of national output at Rs 70,000 crore in 2004-05 prices.