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GST Bill awaits approval, to compensate states for revenue loss

By Sujata Sachdeva

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The Union Cabinet has approved amendments to the Constitution (122nd Amendment) Bill to launch the goods and service tax (GST), after incorporating some changes suggested by the select panel of Rajya Sabha. The GST Bill may get passed in the Parliament’s ongoing monsoon session if the opposition allows discussion on the matter.

The key changes approved by the cabinet in the GST law is full five-year compensation to the states for possible loss of revenues, a measure taken to get support in the Rajya Sabha, from like West Bengal and Odisha, where the government does not have allies in power. The select committee has suggested compensation against the entire revenue loss for full five years as against compensation in phased manner provided in the Bill. Sources say that the details of the 1 percent tax to be levied over and above the GST rates to compensate the manufacturing states for a possible loss of revenue will be finalized at the time of framing the rules.

GST proposes to replace most central and state levies with one single tax, which is projected to add as much as 2 percent to the country's GDP. The Rajya Sabha Select panel was set up by the government during the budget session to get approval for GST Bill in Parliament. The GST Bill was passed in the Lok Sabha, but faced opposition in the Upper House.

A consensus is yet to be reached on the bill, which requires to be passed with two-thirds majority, with the Congress and the Left confirming they would submit a dissent note against it. Sources say that the Congress was opposed to the proposal for levying one percent additional tax on the supply of goods in the course of inter-state trade.

However, the research division of rating agency Crisil expects the roll-out of goods and services tax (GST) to reduce logistics costs of companies producing non-bulk goods by as much as 20 percent. The savings will accrue from a gradual phasing out of central sales tax (CST), consolidation of warehouse space and faster transit of goods since local taxes (such as Octroi and local body tax) will be subsumed into GST, Crisil Research said.

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