The Bill provides further comfort to States by allowing them to charge additional 1 to 2 per cent GST to cover up for losses. This provision will have a sunset clause and will be available only for two to three years.
It is expected that the compensation mechanism will bring States on board, a highly placed government source told The Hindu.
The Finance Minister wants the Constitutional Amendment Bill to provide for a flawless framework for a pure GST, the source said. “He feels that if States insist on a half-hearted GST then there is no point of bringing the reform at all … The GST architecture cannot be flawed … the Constitution should not have to be amended again and again ... .”
Extending the GST to real estate transactions, the source explained, will reduce black money generation in the sector. Consequently, low-cost housing will become more affordable, he said.
If the Cabinet gives its approval, the Centre will approach the Empowered Committee with the new proposal on Friday, the source said. The Centre is keen to introduce the Bill in Parliament during the current session.
Several GST rollout deadlines have been missed over the lack of consensus between the Centre and the States over a number of issues. Since the GST will be levied on consumption of goods and services, States that are net producers stand to lose revenue. Finance Ministers of seven such States including Gujarat and Tamil Nadu met Mr. Jaitley on Monday to discuss compensations.
States must not lose sight of the long term gains the reform can deliver to them by being too focussed on short term transition problems, said the source.
A study commissioned by the Thirteenth Finance Commission had estimated that the simplification, efficiency and savings consequent to shift to a well-designed GST regime can boost Indias growth by up to 2.5 percentage points. The GST will subsume the services tax, excise duties, stamp duties, entry tax, central sales tax etc. The Constitutional Amendment Bill proposes to empower both the States and the Centre to levy the GST.
At present, the Centre can tax services but not sales and distribution of goods. States can currently tax sales and distribution of goods but not services. The Bill proposes that the Centre be empowered to tax sales of goods and States get to tax services.
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