States stand to benefit the most from it, he said. The Prime Minister, who spoke in the Upper House as it bid farewell to 53 retiring parliamentarians, noted that Rajya Sabha members are representatives of the states and the interest of their state should be a priority for them.
Intended to subsume many of the central and state indirect taxes, the GST Bill is expected to transform the tax structure in the country. An ambitious overhaul of India’s labyrinth of indirect taxes, the GST attempts to give business enterprises across the country a boost while also encouraging transparency.
The Bill was to be implemented from April 1, 2016, but opposition from Congress over key clauses including a cap on the tax rate had stalled its passage in the Upper House. Lok Sabha has already approved the constitutional amendment but it remains pending in Rajya Sabha, where the ruling NDA does not have a majority.
During a debate on the budget in the Rajya Sabha earlier this week, senior Congress leader Jairam Ramesh spoke of his party’s demand for capping GST rates in the Constitution. To the uninitiated, the Congress party seeks three changes to the current bill. It has demanded that the 1 percent additional levy on the supply of goods and services should be scrapped. This tax on inter-state commerce directly contradicts everything the GST stands for. This means that inter-state trade will not be seamless as Arun Jaitley has promised and compliance difficulties will translate into long lines at the state borders.
The Congress also sought an independent dispute resolution mechanism for settling disputes between states, besides capping the tax rate at 18 percent in the bill. On capping the tax rate, Finance Minister Arun Jaitley argued that including a cap on the tax rate would require an amendment to the law every time the tariff needs to be revised. “No tariff can be perpetual.
If volumes increase, it can go down. In a crisis, it can go up. None of your Finance Ministers (Pranab Mukherjee and P Chidambaram) proposed it. How can we go every time to the states if we want interest rates to be raised,” he said. Jaitley is right when he describes the Congress proposal to enshrine a cap on the GST in the Constitution as preposterous. Governments must also always strive to maximize the tax/GDP ratio so that States have enough money to invest in assets that will beget more taxes.
In other words, tax levels must never be capped. The Congress party’s insistence on a GST cap is out of sync with reality. However, the irony could not be starker since the BJP had held similar obstructionist positions against the bill when it was in opposition. Companies in India have found it difficult to move into other states because of the tremendous expense involved. Besides following an entirely different set of regulations, companies also follow a completely different set of taxes. If GST is properly implemented, it can change all that, and replace all this confusion with a simple, common tax rate that’s easy to pay.
However, the biggest impediment to the passage of GST in the recently concluded session was not entirely down to disagreements on policy. If the Centre expected any quid pro quo from the Congress, it should have avoided interfering in the Uttarakhand fiasco altogether. Instead, it sought to destabilize a Congress-ruled state government and failed with the apex court-monitored floor test undermining the BJP’s tactics.
What’s worse, the Centre sought to pass the Uttarakhand Appropriation Bill through Parliament, even though the apex court revoked President’s rule. But the ultimate tragedy is that there was no need for the Centre to indulge in such machinations. This is not to suggest that the Congress would have allowed GST to pass if the Uttarakhand fiasco hadn’t happened. There are modalities in the GST that need to be sorted out. It cannot happen if the Congress sticks to its cynical brand of debate. But the Uttarakhand fiasco made it impossible for the Centre to bargain with the Congress.