The Big Story: Concentrated power
The Goods and Services Tax Bill aimed at getting rid of the current patchwork of indirect taxes and improve compliance seems close to becoming a reality. The Union government will introduce the bill for the GST on the first working day of the monsoon session of Parliament on July 18, indicating that its backroom negotiations with various parties have been a success and it is confident of getting the bill passed. This is in spite of the Congress still holding out – a position driven more by its politics than any ideological reason. After all, the Congress had pioneered the bill in the first place (at a time when the Bharatiya Janata Party had opposed it).
In spite of this musical chairs, though there are some very good reasons to oppose the goods and services tax. The GST, basically, takes all taxing power away from the states and hands it to a faceless council. This is ostensibly to ensure a uniform rate of taxation across the country, helping to create a common market for goods and services across India. This is being touted as potential boost for the economy.
Curiously, the world’s largest economy, the United States, sees no need for a GST. It is happy allowing its states to set taxes and frame their own policy. The reason, of course, for this is that the Unites States values its federalism.
States being able to set their own taxes is crucial to governance. After all, in India, it is the states that do all the development work. The police, running school, hospitals, working the rural employment guarantee scheme are all done by state governments. Taking away their power to tax hampers their governance powers and their ability to set their own policy.
Finances are they key to political power. This is why a federal country such as the United States would never even consider abolishing state taxes. Why then is such a major measure being implemented in India – a country three times more populated than the US – without even the minimum debate on what this would do to the country’s federal structure?