Legislative process and the GST Bill
In its bid to overhaul the economy, the NDA government must jump across the legislative hurdles that stand in its path of structural reforms. However, for the NDA, it is the lack of numbers in the Rajya Sabha that is proving to be the biggest obstacle. With just seven working days left in the Winter Session of Parliament, the NDA government has made one last push to pass key economic reforms in the Rajya Sabha. Unfortunately, without the support of the main opposition party, which is the Congress, no substantial legislative business can be conducted, especially in the Rajya Sabha. According to news reports, the Centre will now hold detailed discussions in the Rajya Sabha on the Goods and Services Tax (GST) bill and the real estate bill. Political analysts, however, have suggested that the chances of the GST bill being voted through in this session are bleak due to developments in the National Herald case involving senior Congress leaders. For the uninitiated, in the National Herald case, Congress president Sonia Gandhi, her son Rahul Gandhi, and other senior party leaders have been accused of misappropriating party funds for their personal profit. The leading complainant in the case is senior BJP leader Subramanian Swamy. Quite naturally, the Gandhi family has claimed “political vendetta”, although it was the Delhi High Court, which had dismissed their plea to quash the summons issued by a trial court. Suffice to say, such developments have greatly hampered the legislative process, especially after Prime Minister Narendra Modi had initially cajoled the Congress into discussions on the GST Bill at the start of the Winter Session. The Congress party has now got a stick with which it is going to beat the BJP. The National Herald case is not just a legal battle now, it’s seen by the Congress party as an attack on the Gandhi family.
It goes without saying that India needs a goods and services tax system. The arguments in favour of an efficient GST system are plenty. A simple tax regime would require subsuming all state and central taxes under GST, thereby avoiding the unnecessary fragmentation of Indian production. Its simplicity will greatly improve governance by creating a proper and simple paper trail of transactions across value chains, thereby reducing the scope for corruption and black money. The other major advantage of the GST system is that it will integrate India into a common market, almost 70 years after our political independence. Moreover, the dual structure of the Indian GST system will ensure the fiscal independence of the states. However, a recent paper released by the Ministry of Finance 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. 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. 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.
It is also a fact that an additional, non-creditable tax of 1 percent on the inter-state movement of goods remains in play. Such a tax on inter-state commerce directly contradicts everything the GST represents. Suffice to say, the inter-state trade will not be seamless as Arun Jaitley has promised and compliance difficulties will translate into long lines at the state borders. In a reference to the governance value of the GST system, it is amazing that real estate has been left outside the ambit of GST. Suffice to say, the real estate sector is one of the biggest purveyor of illicit money in the Indian economy. Therefore, with all these anomalies still unresolved, the NDA government’s decision to discuss GST on the floor of the Rajya Sabha comes at a welcome time. However, the Enforcement Directorate is exploring the possibility of a formal probe into the National Herald case. If it indeed takes it up, one should expect the Congress to dig its heels in further and hold the legislative process hostage to political/legal considerations.