Will poll results help GST?

Besides the obvious benefits to the people of West Bengal, the Trinamool Congress’s landslide victory in the recent Assembly polls could also play an important role in the passage of the long-pending Goods and Services Tax (GST) Bill. After the poll results were announced on Thursday, Chief Minister Mamata Banerjee said that her government would support the GST Bill in Parliament as promised earlier. Meanwhile. the Bharatiya Janata Party is expected to improve its tally only marginally in Rajya Sabha after the biennial election on June 11. The Bill is currently stuck in the Rajya Sabha. Electoral setbacks for the Congress will mean that their tally will not increase. India’s grand old party has been at the forefront of the opposition to the GST Bill. 

Reports indicate that the TMC’s support will add 12 crucial votes if the GST Bill comes up for a division of votes. However, merely garnering the TMC’s support will not be enough. The BJP-led NDA government will have to reach out to other non-UPA/NDA parties like the Samajwadi Party, AIADMK, Biju Janata Dal and the Bahujan Samaj Party. “These parties may together tilt the balance in favour of NDA either by voting for it or just by abstaining to bring down the half-way mark,” according to a report in a leading English newspaper. Depending on which report one believes, the BJP is likely to either bridge the gap or overtake the Congress in the number of seats it holds in the Rajya Sabha, Moreover, the support of TMC and other regional parties could increase the pressure on Congress to reach an accommodation on GST with the NDA government. Experts contend that these Assembly elections results have improved Prime Minister Narendra Modi’s chances of speeding up the process of economic reforms. He will certainly find it easier to deal with the likes of TMC and AIADMK in the Rajya Sabha.

On the last day of the previous session of Parliament, Prime Minister Modi lamented the Rajya Sabha’s inability to pass the Goods and Services Tax (GST) Bill—the biggest indirect tax reform since Independence. States stood to benefit the most from it, he said. Intended to subsume many of the central and state indirect taxes, the GST Bill is expected to transform the tax structure in the country. 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.  

The Bill was to be implemented from April 1, 2016, but opposition from Congress over key clauses including a cap on the tax rate had stalled its passage in the Upper House. Lok Sabha has already approved the constitutional amendment but it remains pending in Rajya Sabha. During a debate on the budget in the Rajya Sabha last week, senior Congress leader Jairam Ramesh spoke of his party’s demand for capping GST rates in the Constitution. Finance Minister Arun Jaitley had previously 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 Finance Ministers (Pranab Mukherjee and P Chidambaram) proposed it. How can we go every time to the states if we want interest rates to be raised,” he said. Jaitley is right when he describes the Congress proposal to enshrine a cap on the GST in the Constitution as preposterous. Governments must also 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. To the uninitiated, the Congress party seeks two other changes to the current Bill. It has demanded that the 1 percent additional levy on the supply of goods and services should be scrapped. 

The Congress is on the mark since a 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. It has also sought an independent dispute resolution mechanism for settling disputes between states.