Finance minister Arun Jaitley cannot afford to be complacent on goods and services tax front


The finance minister Arun Jaitley’s statement that the passage of the GST legislation is only a matter of time and that the bill would be voted through in parliament as the opposition to the reform will crumble during a parliamentary vote is optimistic at its best and pure wishful thinking at the worst. This is because this fundamental reform of India’s indirect tax system, which has been entangled in unfortunate rigmarole for much too long due to various acts of omission and commission by both state and central governments, is now embedded in a no holds barred political slugfest between the government and the opposition.

Complicated issues regarding financial autonomy of the states, centre state relationship, impact on states finances and optimal rate of taxation have weighed down the debate on the goods and services tax. So much so that it has now dragged on for almost a decade since the union finance minister first mooted the proposal for the induction of GST in his budget speech in 2006.

The UPA government had introduced the GST in a very optimistic scenario after the states were successfully persuaded to replace states sales tax with a value added tax. However the persistent opposition of states, including the BJP ruled states, pushed the GST off the tracks and it took the UPA government almost half a decade to get the constitutional amendment needed to push through the GST introduced in the Lok Sabha in 2011. The resistance of the BJP to the changes ensured that the legislation remained stuck in parliament till it lapsed after the dissolution of the 15thLok Sabha last year.

The boot was shifted on to the other foot when Arun Jaitley took office as the finance minister under the new NDA government. The BJP which has earlier stymied the GST legislation under the UPA regime was now saddled with the task of shepherding it through parliament. Unfortunately the Congress refused to play ball and demanded its pound of flesh by insisting that the NDA government drop some of the new clauses it had incorporated to negotiate a safe passage for the bill.

No doubt the NDA government had taken the taken the hard decision to extend the guarantee against any loss of tax revenues by the states for five full years after the GST is implemented. This should have taken care of some of the major issues raised by the states and ensured their full cooperation.

But unfortunately the NDA went overboard in their efforts to mollify the rich producer states which would have suffered once the GST shifted the indirect tax base from production to consumption as envisaged. Apart from excluding important products like alcohol, electricity and real estate from the gambit of the bill, which would ensure a steep hike in GST rates, the NDA government also included a new clause to allow the states to levy an additional tax on the interstate movement of goods which was to be shared by the states where it originated.

The Congress has taken serious exemption to this new provision as it not only vitiates the very basic rules of the GST but also because it is largely superfluous as the centre has assured the states, including the rich producer states, of full compensation against any losses from GST. Moreover it will makes imports more cost competitive and erode the effectiveness of the Make in India efforts promoted by the NDA government.

Apart from the complexities of the new tax provisions the scenario has been further muddled by the shrill political challenge being put up by the Congress against the divisive agenda of the NDA alliance especially the recent attempts to foist religious issues on top of the political debate. In such a scenario it would be very imprudent of the finance minister Arun Jaitley to make any tall claims of the NDA electing new members to the Rajya Sabha to improve its numbers and ensure smoother passage of the GST bill. The NDA purpose would be better served if Arun Jaitley and his ilk makes a conscious effort to stop the shrill political sloganeering and bring down the political temperatures to allow for serious negotiations between the government and the opposition and push through the GST bill through parliament at the earliest.

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