If, there is one reform step that has been held hostage to sheer political maneuvering, it is the Goods and Services Tax [GST]. The most vociferous opponent now happens to be a party which had contemplated this idea more than a decade ago and even introduced a bill in the parliament [2009] to garner the full benefits of this ‘trans-formative’ reform [it will add 2% to GDP, according to an estimate].
Having raised a number of contentious issues, the grand old party is in no mood to relent on its most trumpeted demand for putting a cap on GST rate in the constitution amendment bill itself. Pertinently, it mooted the cap at 18% [being the revenue neutral rate [RNR] determined by a committee under chief economic adviser, Arvind Subramanian]. The finance minister, Arun Jaitely had already rejected the demand with equal vehemence noting that “we can’t have a law with defective architecture”.
Congress has now slightly modified its stance. It wants Modi – government to do what it describes as “ring-fencing” of the rate and asked it to come up with proposals in this regard. What ever nomenclature one may use, it does not have trust in the mechanism of GST Council [GST-C] which – as per provisions in the bill – has been given the mandate to fix the rate. So, it must be reined in by mentioning a ceiling in the amendment Act itself.
The position taken by it is flawed bordering on absurdity. The constitution amendment bill is an ‘enabling’ legislation that provides for the possibility of merging a plethora of existing taxes [both at the central and state levels] into a single tax called GST. This also paves the way for Union government to levy tax at the point of sale and states collect tax on services which they cannot do under extant constitutional provisions.
There is thus absolutely no room for including the precise rate in the amendment Act. Yet, including it would lead to an abhorrent scenario. Thus, each time an increase in GST rate is needed, the government will have to go for constitution amendment which requires passage by 2/3rd majority in both Lok Sabha [LS] and Rajya Sabha [RS] followed by ratification by at least 15 state assemblies. Considering fractious RS [may be LS and assemblies too in future], approval may not come and even if it does, it would be too late defeating the purpose.
There has to be enough flexibility in the system so that revisions in the rate can be affected in time to enable smooth governance and ensure that development activities as also implementation of necessary safety and security measures or dealing with natural catastrophes are not hamstrung for want of resources. The task has to be entrusted to a body which can respond to unfolding situations in a timely manner.
The GST-C, which includes representatives of the centre and states eminently meets the requirements. Any apprehension that the centre would coerce or impose decisions detrimental to interests of states or lead to excessive burden on consumers [say, unreasonable hike in tax rates triggering inflationary pressure] is baseless. This is because decisions of the council need to be approved by 3/4th majority of weighted votes with 2/3rd share of states and 1/3rd of the centre.
Is their any alternative that would meet the aspiration of the grand old party? In this regard, in a bid to get Congress on board [in consonance with Modi’s desire to forge unanimity on this important amendment] in the finance ministry, there is a talk of mentioning the ceiling in supporting bills viz., Central GST [C-GST], State GST [S-GST] and Inter-state GST [I-GST] those will need to be passed following the passage of constitution amendment bill.
This may be less onerous than including the cap in constitution amendment act; yet this too is bedeviled with serious difficulties. Considering that under the GST dispensation, a single S-GST has to be uniformly applicable across all states, the revised rates will have to be approved by all assemblies and this has to be done concurrently. Likewise, for approving the new I-GST rate, both the centre and states will have to be on board at the same time.
Coordinating and synchronizing the aforementioned actions is a time consuming process. This will inevitably lead to delays in giving effect to the revised rate thus defeating the objective. True, GST Council could facilitate consummation of this exercise in a lesser time frame, but it cannot compensate for delays inherent in legislative processes. Without doubt, this idea too would still lead to a defective architecture [to use finance minister, Arun Jaitely’s phraseology].
Modi – government should desist from conceding the totally un-reasonable and untenable demand for “ring-fencing” of the GST rate whether via inclusion in constitutional amendment Act or in the supporting legislation. Either way, the country will loose the flexibility of increasing the rate thereby compromising on development and dealing with emergency situations/natural disasters.
It should stick to giving this mandate to GST Council as provided for in the bill. While, working to take the economy forward undeterred by any procedural hurdles, decisions of the Council will also reflect the choice of elected assemblies [representatives of people in the state] via state nominees. Indeed, they are the ones deputed by elected government and there is no reason to doubt their credentials.
If, Congress refuses to budge, the government should ride on the support of all other parties [essentially, regional outfits] in RS who have already given their tacit concurrence taking into accounted the unprecedented economic benefits they will derive under GST dispensation [majority of them viz., Bihar, Odisha, West Bengal, Uttar Pradesh etc being consumption states stand to gain the most].
No doubt, having already missed several deadlines and expectation level of investors – both foreign and domestic – reached a crescendo – the government may not be willing to loose more time. But, this must not be done at the cost of being saddled with a flawed Act.