GST Bill onwards, at last

At last they all seem to have come together to pass the Constitution (122nd) Amendment Bill which would pave the way for one of the biggest tax reforms in the country.

The Rajya Sabha, at the time of writing, was still debating the Bill, but the passage of which seemed a near-certainty. Once the Rajya Sabha puts its stamp on these amendments, the Lok Sabha would be required to give its nod.

The GST Bill, as it is popularly called, will still need to be okayed by the States. The procedural requirements are such it would be quite an achievement if the GST can be enforced from the start of the next financial year on April 1, 2017. The Government remains hopeful though, and is committed to work to a tight timeline.

First, why the delay? After all, the GST was first proposed by a committee when Vajpayee was prime minister. Even before things could move forward, the NDA lost power. The UPA embraced the idea and refined the provisions. It was the turn of the BJP to play the role of an obstructionist. On one pretext or the other, the GST made little progress. Once the UPA-II got bogged down in various corruption scams, the Government lost appetite for pushing economic reforms.

When in May 2014 the NDA returned to power under Narendra Modi it revived the GST Bill but the Congress now played spoilsport, refusing to hear any plea to support a measure it was itself keen to pass while in power. More than two years later, wiser counsel seems to have prevailed.

Finally, the Government and the Congress both relented, agreeing to meet each other half-way. The Congress gave up insistence on writing in stone the maximum possible tax rate in the constitutional amendment Bill while the Government accommodated the Congress on the special levy of one percent to compensate the producing/manufacturing States for the likely loss of revenue.

There were other minor adjustments which were arrived at in a spirit of mutual accommodation, underlining the broad point that once good sense prevails the ruling and the opposition parties are quite capable of working in the larger national interest.

As to the questions why the Congress dragged its feet for over two years and what  it gained delaying the passage of a Bill which by the widest possible consensus among experts is set to improve the tax collection system and boost revenue there are no definite answers.

It is argued that the Congress was persuaded to drop opposition to GST due to the combined pressure of various representative bodies of industrial and business groups and the financial press and economic experts. Also, when the Government agreed to some of its demands, it became hard for it to play ball unless it was ready to risk unpopularity.

Once the Congress came on board, smaller groups who were sitting on the fence too decided to support the Bill. At the time of writing the attitude of the AIADMK was still not clear. As a major producing State it was unhappy with the GST, especially without the one percent additional levy to compensate the manufacturing States. However, even if it were to abstain from voting, the constitutional amendment would sail through the Rajya Sabha.

Though the GST aims to make one big common Indian market, subsuming in it a host of Central and State taxes, it is still a half-measure. For, the exclusion of alcoholic liquor for human consumption and petroleum crude, high speed diesel, petrol, natural gas and aviation turbine fuel allows each State to play around with their own levies. This will distort the common market concept, especially the State taxes on diesel and petrol.

On the plus side, the merger of so many taxes will free up a lot of tax bureaucracies, facilitate easier collection and help attack evasion and theft of manufacturing duties as at present. The principle of set-offs and tax on value additions can eventually lead to lower taxes on goods. Right now there is tax on tax at every point of goods moving from manufacturer to wholesaler to retailer while under the new system at each stage the tax paid previously will be discounted to work out the new tax component, thus leading to a substantial reduction in the end price of goods.

Vitally, it will also depend on the GST rate. Should the Centre fix too high a rate it may hurt the common man more than it might benefit him. In the coming days and weeks, hopefully, there will be greater clarity. But right now we can celebrate the significant event of a wider political consensus on a progressive piece of legislation.

Free Press Journal