By TIOL News Service

NEW DELHI, AUG 11, 2013: AN Indian parliamentary committee has suggested that the country should design its goods and service tax (GST) structure on the pattern of goods and services taxation model adopted by the European Union.

The Parliamentary Standing Committee (PSC) on Finance says: "The Committee are of the view that based on the European model, there could be a floor rate and a ceiling rate within which the States (provinces) will have the freedom to have a high or a low rate. Taking into account the need for State autonomy, the States may thus be allowed to increase their GST rate within a narrow band. There could however be provision to levy higher rates on demerit goods, whenever necessary."

PSC has thus recommended that this flexibility in GST rates should be provided by modifying the proposed new provision named ‘Article 246A' to be inserted in the Indian constitution. This Article would confer simultaneous power to Union and State legislatures to enact laws on GST.

This is one of the salient changes recommended by PSC in The Constitution (One Hundred Fifteenth Amendment) Bill, 2011. The Committee presented its report on this Bill to the lower house (Lok Sabha) of Parliament on 7th August.

Introduced in Lok Sabha on 22 March 2011, the Bill was referred to PSC a few days later for detailed scrutiny and report by the Speaker of the House in accordance with the standard procedure for vetting of the parliamentary legislations.

The Bill seeks to bring fundamental systemic reforms in the indirect taxes dispensation prevailing in the country by integrating and harmonizing the tax structure across the country in the form of GST.

The proposed amendments in the Constitution are targeted to achieve the objective of conferring simultaneous power on Parliament and State legislatures to make laws for levying GST simultaneously on every transaction of supply and goods & services.

In addition, the proposed amendments would allow subsuming of a number of indirect taxes presently being levied by Central & State Governments into GST and thus will remove cascading of taxes and provide a common national market for goods and services.

The report says: "While designing the desired tax reforms, the Government should also learn from the experience in other countries, while taking into account the political, social and economic variations obtaining in our country. Adequate groundwork would thus be essential before setting upon to operationalise the proposed GST regime. Keeping in view the apprehensions expressed by States, a credible study would also be required to evaluate the impact of the GST regime on the revenues of States."

PSC believes that any tax reform should have an objective of improving economic efficiency, encouraging economic activity and benefiting the common man.

It says that GST should be put in place by giving due regard to the Constitutional Scheme of distribution of powers and fiscal autonomy of the States. In a federal set-up, implementation of a comprehensive tax reform like GST hinges on mutual trust and cooperation between Central and State Governments.

Analysts are keeping their fingers crossed at the prospects of the Bill sailing through both the houses of Parliament before the announcement of elections to the Lower House that are due in April 2014.

According to a political analyst, the Bill would lapse if the elections are announced earlier amidst vitiating political discourse among the motley of political parties or if the political logjam derails the passage of the Bill.

If that happens, then a fresh Bill would have to be introduced in Parliament after the formation of new Government and would again get referred to PSC for scrutiny. The lapse of a Bill can be avoided by introducing it in the upper house (Rajya Sabha).

Put simply, the introduction of already delayed GST is in danger of further slippages due to political uncertainty.