How Congress Will Block GST

Arun Jaitley’s Facebook post on Congress and the GST is wrong on every count. He begins by bemoaning the fact that while the GST (Goods and Services Tax) is a Congress initiative, it is now the Congress that is blocking progress. What he forgets to add is that it is the BJP, led in this instance by none other than Jaitley himself, who blocked the passage of the 2011 GST Bill presented by then Finance Minister, Pranab Mukherjee, principally because Gujarat, under a Chief Minister called Narendra Modi, was dead opposed to it. It is thus richly ironic that the man who taught us how to block matters is now bemoaning how well we have learned from him to do so.

The difference is that while Modi and Jaitley blocked without reason (for, if there were reason, how have they now suddenly become such ardent advocates of exactly what they blocked?!) the Congress has presented cogent reasons – of a general and specific nature – for its stand in the long dissent Note it has incorporated into the Report of the Select Committee on Jaitley’s GST Bill.

As Jaitley makes no reference to the general reasons advanced by the Congress (for that would be to nakedly reveal his own absence of reason), let this column bring on record the principle general reason. Our Note of Dissent begins by saying that while we are in favour of a “simple and comprehensive GST” the present Bill is neither simple nor comprehensive. It is not “simple” because it is pitted with so many exceptions, exemptions and compromises as to obscure the overarching purpose for which the Congress has been campaigning for a GST for more than a decade, namely, to jack up our growth rate by making India a single common market where, whether a product is sold in Bulandshahar or Basavangudi, the sales tax levied on it is the same everywhere. This can only happen if every good and every service, without exception, comes within the ambit of the Bill. Hence our emphasis on the next two words: “and comprehensive”. If electricity and most petroleum products are kept out of the Bill’s purview, as Jaitley has proposed, obviously a huge input in the production of every type of good and service will be excluded. It is impossible to think of almost any product (except perhaps handlooms and handicrafts) that do not require electricity and petroleum products. Yet, Jaitley’s Bill does just that.

Secondly, alcohol for human consumption is one of the most revenue-generating items produced. Yet, the liquor industry is riddled with malpractices because high taxes on liquor only open the door to ‘hooch’ and what is technically called ‘seconds’ – liquor that is siphoned out of sight of the taxwallah and sold in the black market. This has not only spelt a painful, writhing death for thousands caught in the web of illicit liquor, it has also spawned a vast mafia involved in all kinds of criminal activity. Therefore, including liquor and tobacco in the GST is an imperative of rendering the GST “comprehensive”. Jaitley’s Bill fails on that score.

Next, Jaitley admits that the Congress proposal to provide for an 18 per cent ceiling on GST has merit. Yet, he wants to leave it to the GST Council – a collection of State Finance Ministers – to decide the rate. As the rate being bruited about (on a calculation made by the National Institute of Public Finance and Policy) is 27 per cent or even higher, there is naturally concern that in chasing higher revenues – which is arguably the chief concern of Finance Ministers – the temptation will be to take the GST as high as possible. That is why a Constitutional mandate to keep the rate moderate and reasonable was being attempted through the Congress amendment to provide a ceiling of 18 per cent beyond which the GST Council would not be authorized to go.

Note that any indirect tax, including GST, is “regressive” – that is, it falls most on the poorest consumer. With direct taxes in the region of 30-33 per cent, an indirect tax like GST at 27 percent would be a huge burden for the poor to bear, the burden being the greater the poorer the consumer.

Jaitley’s colleagues in the Select Committee took recourse to the argument that a specific figure or percentage cannot be mentioned in the Constitution. We patiently pointed them to the precedent that the Constitution in Article 276 (2) sets a ceiling in absolute numbers – “two thousand and five hundred rupees per annum” – on professional taxes; so there was no problem in mentioning a specific percentage as the ceiling for GST. The argument did not wash with the BJP. We then pointed out that they themselves, in this very Bill, were proposing an additional levy of 1 per cent. If it was valid, we said, to propose a specific percentage in one part of the Bill, how was it illegitimate to propose a specific percentage in another part of the same Bill? Answer there was none because in the smug arrogance of its majority in the Lok Sabha, the BJP has closed its ears to straightforward logic.

With regard to the BJP proposal to levy an additional 1 per cent tax for two years, we pointed out that this would be market-distorting besides being wholly unnecessary if our proposal were accepted that for a period not less than five years, the Centre should fully compensate any revenue loss suffered by any state. But Jaitley’s boys (and now, it would seem, Jaitley himself) were having no truck with any Congress amendment. Well, we will have to teach the Jaitley gang that in our parliamentary system a simple majority in the Lok Sabha is not enough to bulldoze their view; our strength in the Rajya Sabha exceeds theirs and they have to secure a two-thirds majority in each House, with half the members present and voting, to secure passage of a Constitution amendment Bill such as the 2015 GST Constitution amendment Bill. Congress members of the Select Committee constituted one-seventh of the strength of the Committee; our strength is nearly double that in the Rajya Sabha. With the help of just those three other parties (CPI-M, CPI and AIADMK) who submitted Notes of Dissent, we will have the required blocking one-third of the vote. Jaitley needs to redo his arithmetic.

The 2011 Mukherjee Bill that Jaitley, a new convert, has suddenly started quoting when it suits his convenience, provided that there would be a GST Disputes Settlement Authority. Jaitley’s merry band have decided that the GST Council will itself settle all disputes – which is a blatant transgression of the elementary judicial principal that a party to a dispute cannot be a judge in its own cause. Since all GST disputes must necessarily involve one or more states and often the Centre, how can a GST Council composed of the states and the Centre decide for or against its own membership? Hence, Finance Minister Mukherjee had provided for a GST Disputes Settlement Authority. We tried to bring this back into the Jaitley Bill. Jaitley conveniently elides this question.

We also moved that the Centre be prevented from bullying the states by raising the share of the States’ votes from two-thirds to three-quarters. The BJP revealed its true face by insisting that the Centre retain a blocking one-third of the total vote. What kind of “cooperative federalism” is this that does not trust the states to know what is good for them and, therefore, to retain the power to ride roughshod over the States’ collective majority?

This mentality of bullying the weak and helpless is evident in Jaitley’s opposition to the pathetic plea of two small entities – Puducherry and Goa – for the GST Council to extend “special consideration” to their requirements. The BJP chairman of the Select Committee rejected this on the specious plea that only “special status” States could have this concession; he was deaf to our argument that “special consideration” did not require states being given “special status”. The same woodenness characterized the BJP’s inability to understand that one cannot talk of “supplies” – which is at the heart of the Bill – without defining what the word means.

And, finally Jaitley’s insensitivity to the interests of local government, whose “sound finances” – a Constitutional requirement – are in danger of being seriously undermined by the Bill, is part of the same mindset. We asked for no more than that the “principle” of local bodies receiving an equitable share in any revenue buoyancy be discussed in the GST Council. This was rejected. Jaitley points to the State Finance Commissions as the appropriate forum for such discussion, but flinches from accepting that unlike central Finance Commission recommendations that, by convention, are accepted and acted upon, most State Finance Commission recommendations are gathering dust in mouldy cupboards. Inclusion of this point in the GST Constitution amendment would strengthen not weaken the 73rd amendment which assures the “sound finances” of the Panchayats.

We are not in a mood to oblige Jaitley. He can eat his heart out.

(Mani Shankar Aiyar is a Congress MP in the Rajya Sabha.)

Disclaimer: The opinions expressed within this article are the personal opinions of the author. The facts and opinions appearing in the article do not reflect the views of NDTV and NDTV does not assume any responsibility or liability for the same.


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