Onboard for GST?

In a significant boost for the Centre, Bihar Chief Minister Nitish Kumar on Tuesday said his party is on board with the Goods and Services Tax Bill, leaving the Congress with little support. “We have always supported the GST,” Kumar said after a meeting with Finance Minister Arun Jaitley. “We supported it during the UPA and support it now. This is in the interest of the country and states.” The Trinamool Congress, Janata Dal and Samajwadi party have already said they will back the Bill. Kumar’s support is a key sign that the major indirect taxation reform might finally emerge out of Parliamentary limbo in this session. 

Intended to subsume many of the central and state indirect taxes, the GST Bill is expected to transform the indirect tax structure. Today, there is a plethora of taxes and levies imposed goods and services by state governments and the Union government. This places an excessive burden of indirect taxes on the common man. The current system taxes end-consumers and market stakeholders at multiple stages. Instead of paying a plethora of taxes at the state and central level, businesses around the country will have to pay only a single levy once it is enacted. As an ambitious overhaul of India’s labyrinth of indirect taxes, the GST attempts to give business enterprises across the country a boost while also encouraging transparency.

Opposition from Congress over key clauses including a cap on the tax rate had stalled its passage in the Upper House. In a decision that will leave the grand old party further isolated, Nitish Kumar said that he was against any attempt to include the new GST rate within the Constitutional Amendment. Instead, the Bihar Chief Minister said that the rate should be set by the GST Council. This will be acceptable to all since the council has representation from all states and Centre. On the contentious issue of the constitutional cap on the GST rate, the Centre has consistently argued that including a cap on the tax rate would require an amendment to the law every time the tariff needs to be revised. 

“No tariff can be perpetual. If volumes increase, it can go down. In a crisis, it can go up. None of your (UPA) Finance Ministers proposed it. How can we go every time to the states if we want interest rates to be raised,” Jaitley once said. The Congress proposal to enshrine a cap on the GST in the Constitution is preposterous. Governments must always strive to maximise the tax/GDP ratio so that States have enough money to invest in assets that will beget more taxes. In other words, tax levels must never be capped. The Congress party’s insistence on a GST cap is out of sync with reality and the states seem to agree. Although unsurprising, Kumar’s insistence further isolates the Congress, which has 60 members in the Rajya Sabha. The grand old party’s own leaders in the states and its allies like Kumar have opposed the idea of putting the GST rate in the Constitution.

In its bid to further isolate the Congress, the Centre is now reaching out to other regional parties before potentially conducting an all-party meet. Reports indicate that this meet will present the government’s final push for the passage of GST through Parliament. If the government seeks to implement GST at the start of the next fiscal year, it will have to pass the Bill by the current session of Parliament. Suffice to say, the Constitutional Amendment needs to be followed by four other pieces of legislations that will also require the assent of two-thirds of all state legislatures. In the past two years, the debate on the GST Bill between Centre and the states as well as between various political parties has boiled down to the technical aspects of the proposed reform. 

Debates on the compensation due to the states for giving up their ability to tax a plethora of economic activity, the composition and power structure of the GST Council, the tax rate that will be neutral in terms of revenue and whether a maximum GST rate should be written into the Constitution, among other technicalities, have dominated the public discourse. As a result, some have lost focus on the original economic rationale for GST. In his book “Restart”, Mihir Sharma, a senior editor with a leading business daily, breaks down the value of this indirect tax reform in very lucid terms: “This (GST) is completely revolutionary; the sort of economic backroom plumbing that can change your life without you even noticing. It means that every commercial establishment will find it slightly easier to pay taxes – and also, they will discover, it’s become slightly more difficult to avoid doing so. It means that there will be, hopefully, more in common between the taxes you have to pay in Maharashtra and Madhya Pradesh than there has been so far. 

Another thing that’s been keeping companies small is that moving into another state is a tremendous expense. You need to follow an entirely different set of regulations – but also a completely different set of taxes. Not to mention the fact that your truck has to wait for a week at the border to pay taxes to cross. Properly implemented, the GST can change all that, and replace all this confusion with a simple, common tax rate that’s easy to pay.” The key phrase to be noted is “proper implementation”. There are bound to be hiccups at the early stages due to the complex nature of the reform. Since both states and centre will have dual control, this may create a lot of tension in the early phases of implementation. Before other extraneous developments turn Parliament’s attention onto other issues, both the BJP and the Congress must resolve their differences and pass the GST Bill at the earliest.