Consensus over GST

For a change, the Upper House of Parliament resembled less a battleground and more a deliberation of elders in complete accord as it passed the Goods and Services Tax (GST) bill on Wednesday. Befitting a law touted to bring about the most wide-ranging tax reform since Independence, it was ected with broad consensus in the Rajya Sabha. The Congress filly came aboard after the Modi government reached out through a series of meetings. Trimool, Samajwadi Party, JD(U) and other parties had already promised support, though the AIADMK walked out of the debate. The end result of a 13-year long journey was passage of the Constitution (122nd Amendment) Bill, 2014, which will make India a unified common market with a uniform tax on goods and services. A hitherto bewildering array of Central and State taxes will be subsumed within this single indirect tax. The Central excise duty, additiol excise duty, additiol customs duty or countervailing tax, special additiol duty of customs and service tax will all merge within GST; so will State level taxes comprising octroi and entry tax, VAT, taxes on sales, purchase and entertainment, taxes on gambling, betting and lottery, as well as Central sales tax levied by the Centre and collected by the States. No wonder many economists believe GST will significantly improve the country’s growth rate, a sentiment Fince Minister Arun Jaitley alluded to during the passing of GST bill. For both the Central and State governments, a single tax will be easy to administer, prevent leakage and evasion, and collect tax revenue efficiently. Traders, manufacturers and exporters will find it simpler to understand and comply with. The consumer will also benefit with a transparent tax charged on the last seller in the supply chain from whom he has bought the product — as GST primarily taxes each stage of value addition, with set-off benefits at earlier stages.  

If GST is such a win-win proposition for all stakeholders concerned, why was its journey so long and tortuous? After all, it was discussed in Parliament way back in 2003, then made it as a proposal in the 2006-07 budget. Over the next three years, the Central and State governments shared inputs. Levying a countrywide tax needs amending the Constitution; the amendment bill was introduced in the Lok Sabha in 2011 and was promptly sent to the standing committee. When the committee gave its report in 2013, the then UPA government received broad support from the BJP while the draft underwent revision. But in 2014 when the BJP formed government at the Centre, the Congress refused to play ball, leading to an almighty logjam. When other opposition parties began leaving out the politics to support the bill on economic ratiole, it became easier for the NDA floor magers to coax the isolated Congress back to the negotiation table. The scene will now shift to the States, where at least 16 State Assemblies must ratify the bill. The major hurdle was the fear of some State governments about losing their powers to tax; there were also differences between States with manufacture States complaining that consumer States will gain more from GST. The dispute over taxing petroleum products was such that these had to be left out of the GST bill altogether. As of now, States will continue levying their own taxes on petroleum products until they reach some sort of consensus over the issue. Similar was the case with potable alcohol, which too has been kept out of GST purview at present. It just goes to show how taxing fuel keeps State economies afloat in this country. The debate over GST also assumed a wider dimension over the country’s federal structure, with several States voicing fears that the Centre will arm-twist States in any tax dispute. This issue has been resolved with the proposed conversion of the empowered group of State Fince ministers into a GST council, to be equipped with mechanism to settle disputes on equal terms. But there is still a major sticking point over GST — should it be capped to a maximum rate fixed by law? The Congress argues that capping GST rate at 18 percent will be fine, that anything more will be inflatiory and lead to tax evasion. But several States, particularly those with parlous finces, are demanding GST rate at 20 percent or above. Fince minister Jaitley is now diplomatically calling for an ‘optimum’ rate, so the issue will remain on boil till GST is rolled out by its scheduled deadline on April 1 next year.