Finance Minister Arun Jaitley on March 29 allayed apprehensions about rise in prices of goods and commodities after the roll out of GST saying tax rates will be kept at near current levels to ensure that there is no inflationary impact.
Introducing four bills to give effect to the Goods and Services Tax, Jaitley said preparations to roll out the new tax regime is nearing completion and the process to classify categories of commodities will start next month.
The aim of the GST Council is to decide everything relating to the tax structure with consensus and this is for the first time that such an arrangement has been made, based on the principle of shared sovereignty of both the Centre and the state governments, he said.
"The GST council is India's first federal institution where sovereignty of the Centre and the states in relation to indirect taxes have been pulled in together in a federal institution.
"It is incumbent on all of us to make sure that this federal institution works. The delicate balance between what the Centre and states have unanimously agreed is almost a federal contract. Its is federal contract with constitutional sanction," Jaitley said.
The basic principle to determine tax on items will be to find out the current tax components and bracket them under the nearest tax slab so that the prices do not increase, he said.
Jaitley said the four legislations will have to be passed by Parliament and one by each of the state assemblies to turn India into one market with a single tax rate.
The bills introduced are the Central Goods and Services Tax Bill, 2017, the Integrated Goods and Services Tax Bill, 2017, the Goods and Services Tax (Compensation to States) Bill, 2017 and the Union Territory Goods and Services Tax Bill, 2017.
Explaining the bills, he said the Central GST or CGST will give powers to the Centre to levy tax after excise, service tax and additional customs duty are all subsumed. The Integrated GST or IGST will be a tax to be levied by the Centre on inter-state movement of goods and services.
The states will pass the State GST or SGST law that will allow them to levy sales tax after VAT and the like are subsumed.
Besides, GST compensation law allows for imposition of cess on certain luxury goods like tobacco, high-end cars and aerated drinks to create a corpus for compensating states for any loss of revenue in the first five years of GST roll out.
The fourth law introduced is on Union Territory GST or UTGST for UTs like Chandigarh and Daman and Diu which do not have assemblies.
"We are creating by law a jurisdiction simultaneously both in the Centre and states and in the process handing over indirect tax administration to the first federal institution that India has created where Centre and the States will both participate," he said.
The GST Council will make recommendations to the Centre and states on tax, cess and surcharges besides deciding on exemptions and model goods.
It has already approved four-tier tax slabs of 5, 12, 18 and 28 per cent plus an additional cess on demerit goods like luxury cars, aerated drinks and tobacco products. The work on putting various goods and services in the different slabs is slated to begin next month.
Jaitley said the tax beyond 28 per cent on luxury items will be considered as compensation tax for the next 5 years and the money will go to the fund from where states losing on tax will be compensated.
He said if any fund is left after paying compensation, it will be shared between states and Centre.
Referring to tax bracket of luxury goods, he said the extra component beyond 28 per cent tax has been kept as cess as keeping it as tax would have negative impact on the consumers.
Jaitley said as keeping it as tax would have resulted some portion of the money going to devolution. "To make a compensation package of Rs.50,000, we would have to levy tax of Rs.1.72 lakh crore."
He said that "some rules have been made and remaining rules will be ready by 31st. The council made a broad arrangement on division of work between the Centre and State.
Besides that the process to classify which commodities will fall in which category will start next month".
He added: "The law that we are dealing with...even though Parliament and State legislatures have plenary power to legislate but this is a unique experience of Indian legislatures because ordinarily they legislate in areas which exclusively belongs to the domain of Parliament or domain of the state legislatures."
Referring to functioning of the GST council, he said all the parties need to adopt positive approach as the system may badly hit if the contracting parties take "unilateral decisions".
"There can be a situation where all the 32 legislatures (members of the GST council) may say I will make one or two changes to the law that we all have agreed...Unilateralism is possible if the area is exclusively in your domain," he said.
Prime Minister Narendra Modi and several senior members of the Union Cabinet were present in the House when the four bills were taken up for consideration and passage.