Constitutional compulsion to roll out GST before September 16: FM Jaitley

Citing constitutional compulsion, Finance Minister Arun Jaitley on Friday sought to drive home the point that the Goods and Services Tax has to roll out before September 16 next year as the existing indirect taxes will come to an end by then and it would not be possible to run the country without revenue collection.

He made a pitch for widening the tax base, saying efforts are on to make taxation process far simpler and make rates more reasonable.

For instance, he said, the GST Council is deliberating on ways to reduce the taxation process, including assessment by tax officials.

“Today, each person gets assessed thrice, in each of the three taxations (including VAT and central excise). Now, you will only be assessed once and what one authority assesses, others will have to accept that assessment,” he said.

Terming GST as a game changer, Jaitley said: “The Constitution does not permit delay in GST implementation. The government notified GST on September 16 and the constitutional amendment itself says the current indirect tax system can continue for one year, after which the GST has to come.” 

So, if as on September 16, 2017, there is no GST, then there is no taxation in the country, he reasoned.

“So, you have a constitutional compulsion to have a Goods and Services Tax in place before September 16 (2017), otherwise the country doesn’t run, and the tax is absolutely essential. Therefore, our intention is it gets implemented from April 1, 2017, that was the original intention,” he said.

Jaitley made the point that states should not oppose every reform for the sake of opposition because that makes investors wary.

“The states must welcome the decision and I can only tell you, if some states are seen as opposing every reform, then investors in the country and the ones coming from outside, must decide which are the states they want to invest in,” he cautioned.

“So, if your state is seen on the wrong side of the reform, then investors are going to be very wary of those states.”

 Finance Minister Arun Jaitley on Friday said demonetisation may impact growth “for a quarter or so” but this disruption will not last too long and the move along with GST will help create a larger and cleaner economy.

“I have least doubt in my mind that (one year from now) you will have a bigger economy, higher GDP, cleaner GDP. You will have a higher tax base and more money in banks, and probably interest rates will be more reasonable. Therefore, all these collectively could contribute a lot as far as GDP is concerned,” he said at the HT Leadership Summit.

Both the economy and social system will see a major transformation after the implementation of the Goods and Services Tax (GST) post demonetisation.

“I personally believe that once the remonetisation process is complete and the GST is implemented, it’s going to hugely impact India’s businesses and also the Indian way of life.

“You will have more of digitised expenditures, you will have a taxation system far more efficient, which is extremely difficult to evade, where each limb of the transaction is being captured,” he said.

As far as the negative impact of demonetisation is concerned, Jaitley said, “When you switch over, it creates disruption. I don’t see disruption lasting too long. You may see the impact for a quarter or so. Then when you look at next 12-15 quarters, it’s certainly going to benefit.”  Citing a few economic trends post demonetisation, the Minister said rabi sowing this season has been higher than last year, while auto sales were a mixed bag.

“Of course, you will have some disruption created because of the switchover, in the long run, advantages are going to be huge as far as the relative cost of disruption is concerned,” Jaitley said.

Speaking about the various advantages of the demonetisation, the Finance Minister said, it could lead to reduction in interest rates.

“Rates will now hopefully at some stage come down. With more money in the taxation system, our base itself increases,” he said.

Jaitley further said that low-cost deposit due to demonetisation will increase and therefore the ability of banks to use that money suddenly improves for reasonable cost lending in various sectors like social, infrastructure, industry and trade.

“So, that boosts the economy. There could be another limb, that money which was not deposited, then goes to the credit of the RBI. And that money can be constructively used. And of course the third limb, the immediate advantage that you will have of these money, that are even being deposited and which are liable for exemplary taxation,” he said. And the fourth limb, he said, base of taxation for direct and indirect would expand.

Noting that security printing of currency is a fairly complicated and time-consuming exercise, the Finance Minister said, replacement of large volumes of currency required calibrated move by the RBI otherwise it would lead to malpractices.

“If you suddenly release entire thing in one go then there would be market malpractices and therefore remonetisation process is not instantaneous but it would be spread over a couple of weeks,” he said.

Acknowledging that long queues were factored in during the decision-making process of demonetisation, the Finance Minister appreciated that people have cooperated immensely and those standing in queues were disciplined. 

“The country by and large has welcomed this decision,” he said, adding there will be a very significant amount of currency that will be released into the market by December 30.

 “One of the significant advantages of this would be you won’t have the same level of currency which existed on November 8...the level of paper currency will shrink, you should not expect the 

same level of paper currency coming back and it would be lesser. The balance would be replaced by other modes credit, debit cards, e-wallets,” the FM said.