Centre needs to cross a few more hurdles

Virtually all states have supported the idea of GST except Tamil Nadu which has “some reservations”, Finance Minister Arun Jaitley said on Tuesday after a meeting of the Empowered Committee of state Finance Ministers. 

Intended to subsume many of the central and state indirect taxes, the GST Bill is expected to transform the tax structure in the country. As 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. 

Instead of paying a plethora of taxes at the state and central levels, businesses around the country will have to pay only a single levy once it is enacted. 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. 

The government had earlier targeted to roll out the nationwide single tax regime from April 1, 2016, but the Constitutional Amendment Bill on GST has been stuck in the Rajya Sabha due to opposition by the Congress party. To the uninitiated, the passage of India’s biggest major tax reform has been stuck in Parliament even before the NDA government took office. 

Under the previous UPA government, the legislation was stuck for years due to the BJP’s opposition to it. However, the situation was reversed when the BJP came to power, with the Congress creating hurdles in the Upper House. In a reversal of sorts, the BJP argues that the Congress is simply obstructing the bill out of petty political considerations. But the Congress party has put forward some concerns about the bill, which had earlier been echoed by other parties as well.

 On the contentious issue of the constitutional cap on the GST rate, the Finance Minister said: “There is a complete consensus that there should not be any such ceiling as exigencies may arise in future. Now it is left to the GST council.” In other words, it has managed to convince Finance Ministers of 22 states to support the idea that the tax rate should not be mentioned in a constitutional amendment.

 During a debate on the budget in the Rajya Sabha last month, senior Congress leader Jairam Ramesh spoke of his party's demand for capping GST rates in the Constitution. The Centre had previously 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,” the Union Finance Minister 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 maximise 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 and the states seem to agree. However, two issues remained unresolved after the meeting of state finance ministers on Tuesday, according to Swarajya, a monthly print magazine and online daily: “A revenue-neutral rate is yet to be finalised. It’s a tax rate that does not cause a loss to states in a new tax regime. 

Another issue is that of dual control. These will be discussed at the next meeting of the committee in July.”Not counting the Congress and the Left parties, the Centre has more or less managed to convince most parties of the bill’s merits. But both the Samajwadi Party and the All India Anna Dravida Munnetra Kazhagam remain opposed to it.

 If the NDA government wants to pass the bill in the Upper House, it will need at least one of the two parties on its side. AIADMK chief Jayalalithaa put forward her objections to it on Tuesday. “She has demanded that the weight of the Centre's vote in the GST council (which will set the tax rate) be reduced in favour of more powerful states,” according to Scroll.in.

 "The Tamil Nadu Chief Minister also demanded a different revenue share for high revenue states, instead of the additional one percent tax proposed." She feels that a manufacturing state like Tamil Nadu will permanently lose substantial revenue if the GST is implemented. 

Besides amendments to the GST Bill, she also pressed the Centre to lift the ban on Jallikattu and stop Karnataka from building a new dam across Cauvery River. Finance Minister Arun Jaitley has indicated a willingness to reconsider some of these provisions. The Centre should ensure that the new tax regime incorporates the inputs of major states that stand to lose the most.