The Rajya Sabha-appointed select panel on the Goods and Services Tax Bill (GST) has suggested that States be compensated for loss of revenues arising from GST implementation for five years.

This could, to a large extent, clear the hurdle in the passage of the GST Bill in the Upper House. The Bill is likely to come up in the Rajya Sabha during the Monsoon Session of Parliament, which begins on Tuesday.

The Congress and the Left parties have given dissent notes to the report, which was adopted by the panel on Monday. The government, however, seems to have gained the support of some regional parties, including the Trinamool Congress, the Janata Dal (United) and the Biju Janata Dal.

Most members in the panel had demanded that the States be compensated at least for five years. The panel has suggested an amendment to Clause 19 of the Bill that “Parliament may, by law, on the recommendations of the GST Council, provide for compensation to the States for the loss of revenue arising on account of implementation of the GST Tax for a period of five years.”

The panel report, seen by BusinessLine, is for allowing States to levy one per cent additional tax on inter-state supply of goods but with a rider. The panel says that in Clause 18, which discusses the additional tax, the word ‘supply’ should be explained as ‘all forms of supply made for a consideration.’ The panel, however, observed that this can have a cascading effect.

Various stakeholders had argued that such an additional tax is against the spirit of the GST.

The report has also agreed that the Centre’s votes should have more weightage in the GST Council. It said all the decisions have to be taken collectively by the Centre and the States in the GST panel and 75 per cent votes are necessary for this. “So, in order to strike a fine balance, Centre’s vote share has been kept at one-third and that of the States at two-third,” it noted.

The committee felt that tobacco products should remain within the ambit of the GST. Various voluntary organisations and States had demanded that States should have the right to levy taxes on tobacco and tobacco products.

Protecting local bodies’ rights The committee has taken the view that States should protect the taxing rights and revenues of local bodies. The panel asked the States to ensure regular flow of revenues to the local bodies post GST roll out.

Maintaining that local bodies play an important role in the development process, the panel said: “In that backdrop, the committee strongly recommends that while drafting the State GST laws, due consideration to the third tier of the government as has been guaranteed by the Constitution be given and provisions of devolution of taxes to the local bodies be made.”

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