FM panel accepts some demands of Cong

The government on Friday virtually came half way to the Congress on the GST tug of war after a finance ministry-appointed panel agreed with two of the four major demands made by the opposition party, raising hope for the passage of the most contentious but historic indirect tax reform this winter session.

The panel headed by Chief Economic Advisor Arvind Subramanian recommended a GST rate of 15-15.5 per cent and also agreed on scrapping the 1 per cent additional state levy but stopped short of giving in to the demand for specifying GST rate in the constitutional amendment bill.

The panel also suggested inclusion of petroleum and alcohol under the GST, another demand made by the Congress.

If the recommendations are accepted by the Centre, it will placate the major concerns of the Congress but the party may still object to the government refusing to add the GST rate in the Constitutional amendment.

The government maintains that inclusion of GST rate in constitutional amendment will make any change in the future a long and difficult process.

The recommendations will now go the GST Council, headed by Finance Minister Arun Jaitley. The council also has state finance ministers as its members but the veto power is that of the Centre and hence in all probability it will be accepted by the council.

The Modi government is keen on passing the game-changing legislation, which eventually aims at integrating all indirect taxes into one, in this session itself so that it can meet the April, 2016 deadline for the GST rollout.

 Passage of the GST Bill has become important for the government, which is of late being criticised for moving slow on ushering in economic reforms, especially after it bungled over the amendments on land reforms bill.  

After the latest recommendations, the government is expected to begin fresh talks with the Congress.

Asked if the government will talk to the Congress afresh, Minister of State for Finance Jayant Sinha said, “we are hoping very much that early next week, we will able to continue our discussion and consultations.”

The panel recommended three slabs for the GST rates for various products from 12 per cent to 40 per cent. The highest rate is applicable to select products like luxury cars and tobacco products.

Besidea, the key revenue neutral rate was suggested of 15-15.5 per cent, the standard GST rate stood at 17-18 per cent, the rate at which most products and all services are likely be taxed.

The panel excluded real estate, electricity and alcohol and petroleum products while calculating the tax rate, as some states have expressed reservations over giving up tax control on the lucrative items but the CEA panel suggested these be brought under the GST ambit soon.