Defeat in the Bihar elections had prompted the current ruling dispensation at the Centre to move ahead with its economic reforms process with haste. An executive order on the opening up of key sectors to foreign direct investment was one such step. However, for the economy to really move ahead, key structural reforms need to be implemented. The goods and service tax (GST) Bill is one particular structural reform that the Centre has been unable to pass through the Parliament. The GST Bill is a Constitutional Amendment Bill which requires the support of two-thirds of the members of each House. Although the NDA government is comfortably placed to pass the Bill in Lok Sabha, it does not have the requisite numbers in the Rajya Sabha. Suffice to say, the Centre has miserably failed to pass the legislation due to a stern or opportunistic opposition in the Rajya Sabha, depending on where one’s allegiance may lie. However, certain regional parties like the Trinamool Congress, Samajwadi Party ,and the Janata Dal (United) are in favour of the Bill. To pass the Bill, therefore, the Centre will have to elicit the support of the Congress, which has a significant presence in the Rajya Sabha. For the uninitiated, it is imperative to understand the spirit behind the GST.
In his book “Restart”, Mihir Sharma, a senior editor with a leading business daily, writes, “This (GST) is completely revolutionary; the sort of economic backroom plumbing that can change your life without you even noticing. It means that every commercial establishment will find it slightly easier to pay taxes – and also, they will discover, it’s become slightly more difficult to avoid doing so. It means that there will be, hopefully, more in common between the taxes you have to pay in Maharashtra and Madhya Pradesh than there has been so far. Another thing that’s been keeping companies small is that moving into another state is a tremendous expense. You need to follow an entirely different set of regulations – but also a completely different set of taxes. Not to mention the fact that your truck has to wait for a week at the border to pay taxes to cross. If properly implemented, the GST can change all that, and replace all this confusion with a simple, common tax rate that’s easy to pay.” In its essence, the Bill seeks to introduce a simple tax regime, which would require the subsuming of all state and central taxes under GST. It was the previous UPA government, which first introduced the Bill in the Parliament, only to be opposed by the likes of Narendra Modi, who was then the Chief Minister of Gujarat. Suffice to say, the previous UPA government could not acquire the necessary political capital to the pass the Bill. After making his way to the Centre, however, Prime Minister Modi brought back the GST Bill with certain significant changes.
In a dissenting note, the Congress listed out eight changes that it seeks to make in the current Bill. Suffice to say, the Congress is not completely wrong. It is a fact that the Centre has been unable to lobby states into giving up their rights to raise taxes from such critical sales items as tobacco, petroleum, and alcohol. These are big money spinners which form a major chunk of the sales revenue of any state. Taxes on alcohol represented nearly a quarter of the Kerala State government’s revenue. Given that if the government cannot convince states to give up revenue rights on this, how can it claim that the GST would help offset indirect taxes by allowing every transaction to fit smoothly into a simplified tax regime? It is also a fact that an additional, non-creditable tax of 1 percent on the inter-state movement of goods remains in play. 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. Another key point of contention is the “revenue-neutral rate” – the tax rate that will ensure no loss in pre- and post-GST revenue to the government –to be applied. Minister of State for Finance Jayant Sinha has reportedly said that the government has established the parameters to have the best possible rates for GST. However, an actual figure has not been forthcoming. Suffice to say, a high rate of 27 percent, which was earlier being bandied about, could significantly hamper business across India. Tax reform is a tricky process. The GST in its current form must not pass without debate. The Centre, however, now seems to be open to certain changes in the Bill. Even if the Centre does manage to incorporate certain changes, experts have argued that the chances of the indirect tax reform kicking in by the next fiscal are slim. In addition to the GST Bill, three other legislations need to be passed by the Parliament. The road ahead is indeed long and difficult.