Flying paper planes standing on benches in an empty class was a hallmark of many a people’s childhoods. However, these attempts at paper aviation usually subsided when a teacher usually entered the class. One is tempted to think of the current Parliament as a class without a teacher to supervise it and what’s worse attempts to rein in the noisy backbenchers have not succeeded even one bit. Just ask Speaker Sumitra Mahajan. To continue the circus of the absurd this political theatre has now shifted to the Upper House. The government’s last-minute push for a major tax reform fell flat on Tuesday with some egg on its face for garnishing as well, with the opposition Congress refusing to call off protests in Parliament to allow a discussion on the Goods and Services Tax (GST).
To paraphrase Finance Minister Arun Jaitley ‘the Congress and its policies were a liability on the country when in power, and its policies remain a liability today’. He went further and accused the opposition party of seeking to obstruct the country’s economic growth. There is some grain of truth to this assessment by the Finance Minister.
It is particularly ironic that the Congress is claiming the moral high ground when it comes to corruption given the track record of policy implementation during UPA-2. It is an open secret that while in power the UPA-2 government consciously delayed contracting on the excellent albeit flawed golden quadrilateral project and as a result highway construction slowed down massively. Next, they bailed out Air India when it should have been allowed to sink or swim.
The UPA also let crony banking sustain bad bets, so much so that now we have an avalanche of bad debt threatening to dynamite the banking system. It is also true that during its time the UPA ensured that regulations become more complex and uncertain. As a result according to a report by the CII input costs rose dramatically. Inflation got out of hand as well. Considering this dubious history of policy formulation and implementation, it is strange that the Congress has chosen to scuttle the Goods and Services tax which was conceptualized during the UPA-2 regime. It goes without the saying that the Goods and Services tax is a good policy move. A simple tax regime would require subsuming all state and central taxes under GST. There are modalities in the GST which need to be sorted out. And they can’t be sorted out if the Congress sticks to its resign first and debate later stance. This cynical brand of debate is not only hurting parliamentary democracy but it is also putting a much-needed policy move in limbo. An ambitious overhaul of India’s labyrinth of indirect taxes which is what the GST attempts to do would give business enterprises across the country a boost while also encouraging transparency.
However and this is where the nuance comes in. The Congress is not completely wrong in wanting amendments to the GST in its current form. It is a fact that the Centre has not yet lobbied the states to give 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. Kerala for the record is a state which is ruled by a Congress regime and has struck a dissenting note against the GST. Given that if the government can’t 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 per cent 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. Tax reform is a tricky process and what the GST aims to do at least in letter if not in spirit is create a seamless national market for goods. This is something which has been in the works since 2010. The GST in its current form must not pass muster without debate but at the same time the obstructionist tactics of the Congress can’t be allowed to stall much-needed tax reform.