The Controversial 1% Manufacturing Tax
Paving the way for a transformational future of much celebrated GST (Goods and Services Tax) Law, recently the Union Cabinet in the Rajya Sabha has approved few key changes to the GST Constitutional Amendment Bill. One of those was the most vexed provision for 1% additional tax levy by manufacturing states on inter-state transactions. Now, this controversial one percent manufacturing tax provision has been removed from the Constitutional Bill.
“Guaranteed” Compensation To States
Accepting and incorporating few of the suggestions of some states, another major step taken by the Cabinet is the introduction of guaranteed 100% compensation to states for a period of five years. Here, the term which needs to be emphasized is “guaranteed”. The reason is that previously, there was a lot of uncertainty of extent of the compensation and it was not even finalized for a long period of time. Afterwards, it was planned by the Centre that the states will be compensated to any extent for the loss incurred due to GST, but by following a pattern as mentioned below:
Since now it has been decided to provide for 100% compensation to the states, the next major task would be determining the procedure of the same including every single detail and specifying the RNR (Revenue Neutral Rate), structure of the rate, and classification of the commodities, etc.
Dispute Resolution by the GST Council
It is to be noted that it has been further decided that the upcoming bill will definitely mention that the dispute resolution would be done by the GST Council, the setting-up of which is quite obvious as any dispute amongst two states would have to be resolved by an inter-state council, and hence there is no other real alternative to this. There is no better other way round than the GST Council to deal with dispute resolution.
Unfortunately, due to lack of consensus on the inclusion of GST rate in the bill itself and certain other issues unresolved, the bill is still stuck in a rut. Most probably the legislation will be again taken up by the Rajya Sabha in the upcoming week of August, 2016. Considering the fact that for the final introduction and implementation of GST Law, the government would not only need states’ backing on the bill, but also the support of the Opposition who have been dominating the Upper House so far. Now the time will decide when and how these changes would substantially come into force and help in making a great change in the entire Indian Taxation System.