States to get full compensation for first 5 years, as Cabinet approves changes to GST Bill


New Delhi: The Union Cabinet on Wednesday approved changes in the GST Constitutional Amendment Bill providing for full compensation to states for first five years of roll out of the new indirect tax regime.

At a meeting with his state counterparts, Finance Minister Arun Jaitley has agreed to include in the Bill the mechanism of compensating states for all loss of revenue for five years.

The Bill in its present form provides that the Centre will give 100 per cent compensation to states for first three years, 75 percent and 50 percent for the next two years.

However, the Select Committee of the Rajya Sabha had in its report recommended 100 per cent compensation for probable loss of revenue for five years.

Terming it a very big development, Chairman of the Empowered Committee of State Finance Ministers Amit Mitra had yesterday said that appropriate wordings on compensation would give confidence to the states regarding Centre.

“I cannot go into details of the wordings, I can only give you spirit of it. States are satisfied that in the constitutional amendment the wording (will be provided) by which states will be guaranteed five years of compensation if there is any loss of revenue,” Mitra said.

The government plans to roll out GST by April 1, 2017, and is working overtime to build consensus to get the Bill passed in the ongoing Monsoon Session of Parliament ending on August 12.

With Congress demand of getting GST rate capped in the Bill delaying its passage, the Centre yesterday built a broad consensus with the states that the rates should not be mentioned in constitution and instead could figure in GST law.

It was also assured that the tax rate in the new regime, which is to be decided by the GST Council, will be less than what it is at present.

In the new regime, there will be one Central GST or C-GST and State GST or S-GST. States levy sales tax or VAT on goods sold within their jurisdiction and get a Central Sales Tax (CST) on sales made outside their territories.

This CST will no longer be available in the new regime and a 1 percent additional tax was proposed to make up for that.

The GST Bill, which intends to convert 29 states into a single market through a new indirect tax regime, was earlier planned to be introduced from April 1 this year, but the deadline was missed as the legislation to roll it out remains in limbo in the Opposition-dominated Rajya Sabha.


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