Chidambaram debunks Govt stand on capping GST rate in statute

Says if the govt had constructively engaged with Congress on its objections, the bill could have been passed by now

Former finance minister P Chidambaram on Sunday debunked the government's stand that GST tax rate cannot be capped and put in the Constitution, saying there was a precedent and made it clear that it has the power to impose new levies in extraordinary situations.

Dismissing Finance Minister Arun Jaitley’s charge that the Congress party was stalling passage of the Goods and Services Tax (GST) Bill for “collateral reasons”, he said the party was ready to cooperate with the government but has not heard from it after the meeting between Prime Minister Narendra Modi and Sonia Gandhi last month.

“If the government had constructively engaged with the Congress on its three principal objections since the beginning, the Bill could have been passed by now,” Chidambaram said.

He said, Chief Economic Advisor Arvind Subramanian's report on GST endorses two out of the three demands of the Congress — there should be no one per cent additional levy on inter state goods movement and the GST rate should not be more than 18 per cent.

On Jaitley's stance that the tax rate cannot be cast in stone by including in the Constitution, he said there is a precedent when professional tax rate of Rs 2,500 was included in the Constitution.

“There is a precedent in the Constitution where the professional tax rate was capped at Rs 2,500. It is not unprecedented. If the government does not provide a cap in the Constitution Amendment Bill than it must be provided in the GST Bill. No tax can be levied without specifying the rate,” he said.

In case of extraordinary situations like natural calamities, the government always has powers to bring a new levy. Also, the income tax as well as customs duties are not being subsumed in the GST and they can be raised to mop up funds for special circumstances, he said.

Explaining the reasons for the Congress' demand, Chidambaram said the cap has to be in the Constitution Amendment Bill so that no government can increase the rate arbitrarily.

"Our experience is that governments including the Congress government in the past have tended to increase the rates in small dozes. The GST is a regressive indirect tax and there cannot be any justification for saying it should not be put in Constitution Bill.

"Bring another tax. You have the power under Entry 97 List-1. Increase income tax, increase customs duty or impose a calamity tax," he said.