Enough gaps in revised GST laws
Ahead of the GST Council meeting on December 2 and 3, the Finance Ministry recently put on its website the revised drafts of the model GST laws, as well as the Integrated GST Act and GST (Compensation to the States for loss of revenue) Act. Even as the ongoing row over the Modi government’s abrupt demonetization of high denomination currencies brought in its trail simmering discontent among several State satraps particularly from West Bengal and Delhi, the revised draft laws touch on raw nerves of the compensation issue. The dual control issue of how the Centre and the States would partake of administrative powers under the proposed GST regime is also bound to fray the tempers of many States. Most of them increasingly feel that their fiscal autonomy is being whittled down under the garb of cooperative federalism to stay dependent on the largesse of the Centre!
The draft laws also provoked the ire of industry as the Centre has armed itself with adequate powers to inflict penalties on businesses that fail to pass on the benefits of the new indirect tax proposal to consumers in the form of lower prices. This proposal has rattled industry about a return to the reprehensible socialist controls and harassments in a travesty of Modi government’s electoral credo of ‘minimum government and maximum governance’. Governments may come and go, but the permanent bureaucratic machinery knows how to keep its turfs intact from any over-zealous openness and reform to make the cost of doing business in the country a tad lower.
The vexatious clause that bothers domestic industry pertains to section 163 of the model GST law which contends, “the Central Government may by law constitute an authority or entrust an existing authority to examine whether input tax credits availed by any registered taxable person or the reduction in the price on account of any reduction in the tax rate have actually resulted in a commensurate reduction in the price of the said goods and/or services supplied by him”. The designated authority is also empowered “including those for imposition of penalty as may be prescribed in cases where it finds that the price being charged has not been reduced”. Analogous measure has also been imposed on the credit of excise and countervailing duties paid on transition stock, and such input credit would only be allowed if the benefit is passed on to the recipient. If businesses are tracked by bureaucrats so through anti-profiteering provisions in the exalted interest of consumers, the incentive for industry to redeploy earnings for further expansion and generation of production would be annihilated.
For States disadvantaged by the advent of GST and looking for fair compensation, the revised draft laws unequivocally said the final compensation to States would be subject to CAG (Comptroller and Auditor General) vetting States’ claims of revenue loss. Even as quarterly payment of compensation to states is forecast, the Centre has also laid claim to any excess amount that might accrue to the GST Compensation Fund. The earlier proposal was to disburse such surplus solely among the States. Both these moves might upset States as being not in the best interest of cooperative federalism the NDA government so grandly proclaimed to underpin.
The way the process and procedures before the rollout of the Goods and Services Tax (GST) are meandering on makes one wonder that the pace of change has seldom been this quick and would never again be this slow! It is more than a decade since the GST was flagged off in a budget speech and after several somersaults by the original proposer Congress, the stalemate was broken with States including Congress-ruled ones broadly agreeing to a multi-tier GST rate structure on November 4 in the capital. Critics cautioned the authorities this multi-layered rate structure with concomitant classification issues, rent-seeking avenues and an intricate operational framework, would render a one-page GST return for ease of filing a gargantuan task.
Though this is a far cry from the one-India motto comprising One Indirect Tax, One Rate and One Registration sedulously articulated by the NDA government in the run-up to the rate decision, the astute Union Finance Minister who is also the Chairman of the GST Council was able to craft a consensus on half-a-dozen rate structure, i.e., exempt, zero, 5 percent, 12 percent, 18 percent and 28 percent that is capped with additional cess on luxury goods and tobacco products. In a way, Jaitley retained the standard rates of 12 and 18 percent proposed at the Council’s last meeting but tweaked the highest and lowest tax slabs from 26 percent to 28 percent and 6 percent to 5 percent respectively.
The hard task of pushing which item goes where with the nitty-gritty being thrashed out by officials who would be subjected to all sorts of lobbying from this or that group meant the interminable uncertainty and mental torment to consumers as they go about their purchases. It is small wonder that no less a body than the Confederation of Indian Industry (CII) pitched for the importance of the bulk of goods and services falling within the standard rate of 18 percent and only as an exception to go to the higher rate of 28 percent! It goes without saying that such lobbying of the sort which the Finance Minister sought to staunch by phasing out exemptions of direct taxes, would now begin to haunt and taunt him with a complicated GST rate structure he is putting on the statute book.
There is also the question of coverage of items under GST which stands incomplete with electricity, petroleum products, alcohol for human consumption and land and buildings being outside its ambit. It is not for nothing that experts contend appositely that the design of the GST could be improved vastly by moving towards more comprehensive coverage with no loose ends hanging to strike a discordant chord.
As the issue of cross-empowerment between Centre and State in managing the GST remains unresolved particularly when the tax base is common for both the Centre and the States and inter-State movement of goods and services has become a compelling feature, the need for crafting trust between them is too crucial to be set aside. This is particularly necessary now because the States levy services tax for the first time where there is scant clarity on rates applicable to services! Eminent fiscal expert Vijay Kelkar has pointed out that with the notification of all sections of the Constitution (101st Amendment) Act on September 16, 2016, laws pertaining to the levy of excise, service tax and VAT would no longer be in force and as such the rollout of the GST cannot be delayed beyond mid-September next year. It is now for the stakeholders in the system to build trust and ensure that the eventual GST is not pocket-pinching for the common man but the most revenue kitty friendly tax as it is trumpeted to be for the exchequer.
(Views expressed are strictly personal.)