States’ concerns have been adequately addressed. Drop the 1 per cent levy
Chief Economic Advisor Arvind Subramanian hit the nail on the head when he said that the proposed additional 1 per cent levy on inter-State trade, apart from the usual GST levies, will throw ‘Make in India’ out of gear. It goes against the basic spirit of GST by being an origin-based tax rather than a destination-based one. Levying it at each stage during the supply of goods with no VAT-like provision for tax credit goes against the principle of doing so on the sale of goods at their final destination. As Subramanian explained, if goods transferred from Gujarat to Tamil Nadu pass through five states, the resulting 5 per cent hike in costs will render imports cheaper. The 1 per cent provision has been inserted in the GST Amendment Bill to placate manufacturing states which fear a major loss of revenue as a result of a shift to a destination-based tax, as against the present system of origin-based levies. However, it is better to stick to a generous compensation mechanism for the States to manage the transition — which, in fact is already in place — than resort to a clumsy compromise that undermines the basis of GST.
The GST idea has come a long way over a decade in accommodating States’ concerns over erosion of fiscal autonomy and revenue loss. From what originally began as a single, harmonised levy, the present Bill proposes a three-tier levy of Central GST, State GST and an Integrated GST. The first two will be levied on the same set of goods and services, which means the States get their bit straightaway, while the third will be collected by the Centre on inter-State transfers and shared with the States. The GST Council to be set up under the law will work out the rates. It should stick to its mandate of subsuming almost all Central and State levies and arriving at a simple rate structure — one that boosts economic growth rather than just short-term revenues. The Bill also provides States with some flexibility to raise taxes to deal with contingencies. So, there is little reason for States to complain, especially when the 14th Finance Commission award is also taken into account.
The GST, by creating a common market for seamless movement of goods and services, will make India a much easier place to do business in, particularly if it is accompanied by steps to simplify procedures and ensure contract enforcement. The present Bill is an outcome of an extended process of negotiations, during the course of which governments have changed in both the Centre and the States. Rather than stall the Bill now, the Opposition should leave matters of detail to the GST Council. The GST is central to making India a better place to invest, trade and live. The political class should come together to make it work — not toss it around like a football.