Speaking to industry leaders, Union Finance Minister Arun Jaitley has promised a simple rate structure and hinted at getting rid of the 1 percent additional inter-state levy in the Goods and Services Tax (GST). In addition, Jaitley also indicated that the standard (“revenue-neutral”) rate of GST would be less than 18 percent. These possible changes are a clear sign that the NDA government is ready to concede some ground to the Opposition’s demand. Suffice to say, the olive branch may have been extended a little too late, as the Winter Session of Parliament will come to a close in a few days. Moreover, there are no signs to suggest that the GST Bill will be passed by the end of the Winter Session. Before getting into the reason for this delay, which is primarily political in nature, it is imperative to understand the ramifications of these concessions from the Finance Minister. A recent paper released by the finance ministry details how years of political bargaining has greatly diluted the GST system, originally envisaged by a government-appointed task force led by Arbind Modi. The effects of such political bargaining can be seen from the significant rise in the “revenue-neutral” GST rate. For the uninitiated, “revenue neutral” refers to the rate that will leave the government with the current level of indirect tax collections after moving to the new system. Any tax rate above and beyond the 12-16 percent range could kill demand, growth, and the recovery. It could kill exports, and “Make in India”. It could kill the chances of compliance improvements, expansion of the tax net, and the reduction of black money and the informal economy.
In the report submitted by the Modi task force, the “revenue-neutral” rate suggested was 12 percent. Instead of a high “revenue-neutral” rate, the Centre could work on expanding its direct tax collections. Only 3 percent of the Indian population pays income tax. Another aspect of the GST system that has suffered at the hands of political bargaining is the exemption of critical sales items as tobacco, petroleum and alcohol from the ambit of GST collections. These are big money spinners which form a major chunk of the sales revenue of any state. However, if the government removes the additional 1 percent inter-state levy, even for manufacturing states, it would be a welcome move. An additional, non-creditable tax of 1 percent on the inter-state movement of goods directly contradicts everything the GST represents. Suffice to say, an additional 1 percent levy would translate into long lines at the state borders, which remain a common feature today. “I have told my friends in Parliament that I am ready to go back to those manufacturing states and tell them that we have guaranteed you to make good for all the loss suffered in the first five years. So, this 1 percent additional levy issue is resolvable,” Jaitley had said. Therefore, it seems as if the Centre can sufficiently convince NDA-ruled governments in Gujarat and Maharashtra, which are major manufacturing states, to give up their demand for tax instead of compensation. Despite these concessions, the current political climate has been vitiated to a great extent, and the chances of Parliament passing a GST Bill during the Winter Session seem remote.
Beginning with the National Herald case, which has left the Congress’ first family in the dock and followed by the CBI raid on the Delhi government’s offices, both the Congress and the Aam Aadmi Party, along with other regional parties, have come together to take on the NDA government. Both parties have accused the NDA government of using central agencies to hound political opponents. The NDA government has hit back, saying that its investigative agencies are merely doing their jobs and to suggest otherwise would be “false propaganda”. As a consequence of these events, the opposition, led by the Congress and AAP, has opened another line of attack on the Centre. Both parties have demanded the resignation of Finance Minister Arun Jaitley for alleged financial irregularities at the Delhi and Districts Cricket Association (DDCA) during his tenure as president. The Congress said it was demanding Jaitley’s resignation as well as a joint parliamentary probe. The ruling Trinamool Congress in West Bengal has joined the fray, supporting the AAP and Congress in their attack on Jaitley and the NDA government. In response, Jaitley has written a counter-narrative on his Facebook page. “These technical and procedural violations were all compoundable and were compounded by Members against whom they were alleged,” he wrote. “The Serious Fraud Investigation Office, under the UPA regime, investigated and could not find a shred of evidence against me. No personal allegation was ever made against me nor did I ever feel the need of contradicting it.” The truth, one could assume, lies somewhere in the middle. However, to argue as various central ministers have done, that the government has nothing do with the actions of its investigative agencies is unlikely to convince many people.
The final result of these political barbs is that India is unlikely to witness the passage of the GST Bill. One can attribute blame to a lot of factors and players. Ultimately, it is the responsibility of the ruling NDA government to pass the Bill. The buck stops with the government. The “stalling” of legislation by opposition parties is fair game. It is finally incumbent on the ruling party to take up the mantle and find a way to propel its legislation process. The people of India will most likely be denied the opportunity to witness the ambitious indirect tax reform, which could indelibly change the Indian market.