NewDelhi/Nagpur: Finance minister Arun Jaitley on Friday said fixing an 18% cap on the goods and services tax (GST) rate suggested by the Congress would result in a flawed system that could lower duties on a host of “sin” products and luxury items.
“There are sin products (such as alcohol and cigarette) that need to be taxed high. There are polluting products and there are luxury items that should attract higher taxes,” he said at the 13th Hindustan Times Leadership Summit in New Delhi.
The finance minister’s remarks came at a time when the government is engaged in a dialogue with the Congress-led Opposition to hammer out a consensus to pass the Constitution Amendment Bill for rolling out the GST.
The GST, billed as India’s most ambitious tax reforms, aims to stitch together a common national market by dismantling fiscal barriers among states. Once implemented, it will replace layers of local levies such as valued added tax (VAT) and octroi by a single nationwide tax.
The 122nd Constitution Amendment Bill, which was passed in the Lok Sabha in May, has remained stuck for want of political consensus in the Rajya Sabha, where the ruling BJP does not have a majority.
The Congress, which had for years advocated the need for a country-wide indirect tax system, has insisted that the GST rate should be capped at 18% in the legislation itself. It also wants the government to remove the 1% “entry tax” aimed to benefit the so-called “producing states” such as Gujarat and Tamil Nadu. Besides, it wants a more empowered dispute resolution mechanism stipulated in the bill itself.
The government has indicated its willingness to remove the “entry tax”, but placing a ceiling on the rate has remained a contentious point.
Last week, Prime Minister Narendra Modi invited Congress chief Sonia Gandhi and former Prime Minister Manmohan Singh, to discuss a way out of the logjam.