There are two key takeaways from Tuesday’s meeting between union finance minister Arun Jaitley and state finance ministers on the Goods and Services Tax (GST) — the surprise U-turn by the left parties and more evidence that the Congress is now isolated in the anti-GST camp. A meaningful support from most states, including the left-ruled Kerala, is evident for the Bill.
Kerala’s finance minister, Thomas Isaac, has said the state is fine to go ahead with the constitutional amendment after the Centre assured compensation for losses in the initial years. The Left had issues with the Bill earlier. Second, most states agree that there shouldn’t be a constitutional cap of the GST rate, may be with the exception of Karnataka. But, except that no states seem to insist this demand and are ready to settle if the rate is specified in the GST Bill but outside the constitution.
With the BJP conceding on two of its three demands by the Congress party, it is time for Rahul Gandhi, congress vice-president, to bring in those 15 minutes to pass the Bill that will realise the biggest tax reform in the country. In an interaction with management students at the Narsee Monjee Institute of Management Studies in Mumbai in January this year, Gandhi had replied to a question on GST saying, “It will take 15 minutes” for the GST to be passed if the Congress’ demands are accepted. With the BJP agreeing to two of the three demands and given the rethinking within the Congress on the lack of feasibility on the third (constitutional capping), it’s time the Congress camp gave in.As far as the issue of dual control is concerned, there is a broad agreement. The dual control will apply to only companies with turn over Rs 1.5 crore. So is on the issue of removing 1 percent interstate levy and dispute resolution mechanism. The point here is the Congress party is largely isolated in the anti-GST brigade, especially on the issue of crucial constitutional amendment with its demand for inclusion of the rate in the cap.
Let’s not make the mistake of thinking GST is the final word on reforms and a panacea for all the problems in the Indian economy. The Bill only takes care of the indirect tax reforms part and lot of work is left in other areas to make the country a manufacturing hub, mainly availability of infrastructure and land. But unless there is certainty for investor that India is progressing from its current convoluted indirect tax regime, this will continue to be a big turn off for foreigners.
“Move to a GST regime will be beneficial for the economy on multiple counts, even though there are likely to be growth, inflation and fiscal implications. The government also faces a fine-balancing act, as it works to reach a consensus with the state governments and opposition parties, whilst also ensuring higher taxes don’t impinge on growth/ incomes. Either way, it is crucial to get the GST bill off the ground,” said Radhika Rao, economists at Singapore based DBS bank.
The Congress is playing a losing game on the issue of constitutional cap for GST rate. If the GST rate is included in the constitution, every time if the rate needs to changed, it will have to go through both houses of Parliament and state assemblies. It makes no sense hence for the Congress party to politicise the issue beyond this point, especially when most states and parties believe otherwise.
A solution, as Ajit Ranade and Praveen Chakravarty explain in this Economic Times blog is to introduce the provision to put a ceiling for GST rate in the Bill not in the Constitution. “Once such a ceiling is specified in the Bill, the GST rates can be changed at will by the GST Council through an executive notification process rather than through a Parliament process in adherence to that ceiling,” they said. The Congress should settle for such a provision rather than insisting for a constitutional cap.
If the constitutional amendment doesn’t happen in this session, it is doubtful whether the government can keep the promise of April 2017 roll-out. The deadline is already delayed by one year and any further delay will send a wrong signal to the foreign investors. There is no better time to bring in this landmark tax reform when the country is marking the 25th year of 1991 economic reforms. It’s time for Rahul Gandhi to show who is the boss in the party and get on with his magic 15 minutes.