The NDA government is willing to meet Congress mid-way as it is considering an option to include a provision for rates of the Goods and Services Tax (GST) in the proposed model law.
“In all tax laws fiscal liability rates are notified by way of schedules. A similar mechanism is likely to be adopted here,” said two sources familiar with the development.
At present, the draft model GST law does not have any provision for the rates at which it will be levied. While it is clear that GST rates cannot be put in the Constitution Amendment Bill, but it can be on the lines of other taxes like income and corporate that has provision in the related legislations.
“It is an option that is under discussion. If required, it can be included along with other changes that States may require,” said sources, adding that the exact rates of the tax would however, be decided by the GST Council once the Constitution Amendment Bill is passed by the Rajya Sabha.
The Centre is hoping that such an option could help break the impasse on GST, where the Congress has demanded that the tax rate at 18 per cent must be capped and included in the Constitution Amendment Bill.
A number of State Ministers that BusinessLine spoke to also indicated that capping the rates in Constitution Amendment Bill is not acceptable. “It is akin to a deal breaker as it would take away the fiscal autonomy of States. Further, it will be extremely difficult to amend the Constitution, every time that the GST rates have to be changes,” said a State Finance Minister.
Simultaneously, the Finance Ministry as well as States are internally working on an acceptable proposal for revenue neutral rate (a rate at which there is no loss or gain). A general mood among the States is that the rate should be kept at a higher level, while the government would prefer a rate which is not inflationary.
“The Constitution Amendment Bill is just an enabling provision for GST. Internationally, most countries have the GST rates in the law,” said Nitish Sharma, Partner, Indirect Tax, Nangia & Co.
Anita Rastogi, Partner, Indirect Tax, PwC agreed and said, “Ring fencing of rates is a discussion which the government may consider keeping in mind that the road block of rates needs to be sorted out urgently. However, the contingencies such as natural calamities when government requires additional revenue should be deliberated upon and a window be kept open for changing the rates.”