Goods And Services Tax Act Vs State Economy


By Abdul Majid Zargar

15 May, 2015

Indian Constitutional amendment bill to introduce Goods & Services Tax (GST) has been passed in the Lok Saba with two-third Majority. It now needs to be passed in the Rajya Saba with the similar majority and ratification by half of the Indian States to take effect. The bill seeks to insert,inter-alia new Articles 246A & 279A in the Indian Constitution conferring simultaneous power to the Union and the State legislatures to legislate on GST and also creation of a Goods & Services Tax Council, which will be a joint forum of the Centre and the States. This Council would function under the Chairmanship of the Union Finance Minister. With this move decks will be cleared for imposition of GST all over India.

The Intended GST Act will subsume all indirect Central Taxes like Central Excise Duty, Additional Excise Duties, Service Tax, Additional Customs Duty (CVD) and Special Additional Duty of Customs (SAD).At the State level, Taxes like VAT/ Sales Tax, Central Sales Tax, Entertainment Tax, Octroi and Entry Tax, Purchase Tax and Luxury Tax, etc. would be subsumed in GST. The act intends to do away with the concept of ‘declared goods of special importance’ presently enjoying Constitutional protection. As an incentive to States to veer around the central legislation and to allay their fears of revenue loss, it is proposed that the Centre will compensate States for loss of revenue arising on account of implementation of the GST for a period up to five years on a tapering basis, i.e., 100% for first three years, 75% in the fourth year and 50% in the fifth year.

Be that as it may, the imposition of this law poses a fresh challenge to the fiscal autonomy of the J&K State. According to our own constitution, the State is empowered to levy taxes both on goods & services through State’s General Sales Tax Act. Since central GST Act proposes to subsume all these taxes in one central legislation, the State’s power to impose such taxes will vanish and New-Delhi always on prowl to erode our autonomy will be more than eager to seize this opportunity.

Our past experience in such matters has also been bitter. To quote two chief instances- Gift Tax Act, a central legislation to tax Gifts, was not applicable to our State for want of legislative incompetence of Centre to apply this law here. Following its abolition at central level in 1997, the provisions of this act were incorporated in section 56(2) of Income Tax Act 1961 with minor alterations & amendments here & there. Since Income Tax act applies to state, the Gifts made in our State are now taxable via Income Tax Act. In other words, Gift Tax has been made to enter our State through a back door. Kashmir Chamber of Commerce & Industry (KCC&I) apprised the former Prime Minster, Manmohan Singh about this brazen act of injustice & foul play through a memorandum but he brushed aside the matter with a smile.

Similarly ,the previous coalition Govt of National Conference & Congress outsourced the financial responsibilities of J&K Bank to Reserve Bank of India in 2011.To recapitulate the whole matter, Under the constitutional scheme of things , Reserve Bank of India Act, as originally enacted, was not applicable to the State of J&K. This was done only in 1956 when the process of gradual erosion of State autonomy was put in motion by New-Delhi post 1953 coup-de-tat . But the bank’s operations remained limited to a supervisory role of local Banks. J&K Bank practically remained the Reserve Bank of the State looking after its fiscal & financial arrangement.

The first nail in the coffin came in 1973 when the public debt function of the state was taken over by RBI. No tears were shed then as the agenda of New-Delhi was being faithfully carried out by the ruling elite. For opposition, Beg-Parthasarthy talks had just started and the beneficiaries –in-waiting too were not interested in frustrating the process.

The other facet of the financial arrangement ,however continued to remain with the J&K Bank. All Plan & non-plan Funds, tax & non-tax revenue were routed through this bank. The ways & means advance, meant to bridge the mis-match between receipt & payments was also provided by this bank. In more ways than one , the arrangement ,though considerably depleted by the ambush of 1973, was symbolic of uniqueness & financial autonomy enjoyed by the State . And symbolics do matter. In 2010-11, the remaining half of this fiscal autonomy was handed over to New-Delhi by snatching all the powers of J&K Bank to provide ways & means advance to State. The results of this ill fated move are for all of us to see. Today our treasuries are empty & we cannot use our own money deposited with J&K bank to bail us out of the mess. J&K bank has virtually been reduced to the status of an informer of Central Govt. departments like Income Tax Deptt., Enforecement directorate etc. etc. to find who & how much a Kashmiri deposits in his bank account.

Let us be careful this time & not allow the present coalition to fiddle with our fiscal autonomy by allowing to concede application of GST in its present form. Saving fiscal autonomy means nurturing your political autonomy.

(The author is a practicing chartered Accountant. Feed back at [email protected])


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