“In its current form, the GST would not have brought a huge improvement in the economy of India.”
A delay in the Goods and Services Tax (GST) bill beyond the winter session will not hit reforms, says Satya Poddar, Partner, EY. In an interview to ET Now, he says that in its current form, the GST would not have brought a huge improvement in the economy of India.
ET Now: The GST Bill is not going to see the light of the day, at least in the winter session. As the main opposition and the government lock horns on this one, what is your take?
Satya Poddar: I am an optimist and I do not think a delay beyond the winter session is going to be devastating for the reform process. The government is still going to push ahead for reforms in the budget session. In its current form, the GST would not have brought a huge improvement in the economy of India. The chief economic advisor (CEA)-led panel’s report has very categorically stated that if the GST is to benefit the economy, the government cannot cherry-pick recommendations of one or low tax rates without broadening the base.
Now the CEA’s recommendations fell in two categories – those which required an amendment to the constitutional bills and those which could have been negotiated after the amendment to the constitution.
The government has chosen not to accept the CEA recommendations for broadening the base under the constitution. It is still of the view that the only recommendations of the CEA which will be accepted are, perhaps, dropping the 1 per cent tax rate. Even on that issue, the government is non-committal. This is despite the industry making several representations over the past few months.
ET Now: The Opposition wants the GST to be capped at 18 per cent, else the tax rate may shoot high. Do you think it is a valid point?
Satya Poddar: The current form of the GST that is being negotiated between the centre and the states is indeed very truncated. It is only the pressure brought in by the opposition for putting in a cap that has been a crucial factor in making the Centre agree to a lower rate model.
Even to this date what CEA report says is that if you keep the base as it is with all the exclusions imposed in the constitution, the rate can barely come down to 18 per cent. I do not think that his calculation suggests that the rate can be much below 18 per cent.
On the other hand, if you broaden the base, you can bring the rate down to well below 18 per cent. So I believe that the rate need not be legislated but at the same time, the constitution should not blast the factors from coming in to the base explicitly.
ET Now: Where do you think is the middle ground?
Satya Poddar: The relenting can take place if the government unblocks the inclusion of sectors like electricity, petroleum from the tax base because then the base would broadened. The rate could be get well below 18 per cent and at least then the Congress party will have no excuse for demand and explicit gap on the rates and the constitution.
There are some fundamental flaws in enabling provision for the GST in the constitution. The Constitution says the GST is any tax on goods and services and there is absolutely no linkage between the GST council recommendations and the enabling provision for the GST in the bill.
So right now you have a situation that the any state can completely disagree with the GST council recommendations and there can be binding pressure that can be brought upon that state.
The least the government could have done is to address those open flaws in the drafting of the GST. In the current acrimonious atmosphere, the government is not able to sit down with the Congress Party or other opposition leaders to work in a rational manner.
I do not really see any hope of the parties coming to a compromise in the remaining time period of the winter session.
ET Now: Please correct me if I am wrong, but he was of the opinion that even if this would see the light of the day in the budget session, it is unlikely that it could happen in the calendar year 2016. It would happen more likely towards the latter half of 2016 or towards the end or may be March 2017. Do you agree?
Satya Poddar: In my view, if the GST does not go through the winter session of Parliament, it is most unlikely that it would happen by March 2016 or even in the rest of the 2016. Both for political reasons as well as parliamentary approval process, technical details to be specific. I am of the view, and this is only my hunch, that the government will have to abandon the GST of the type that is envisages in the current constitutional bill and they may have to look for alternative forms of GST which accomplish most of the goals of this bill, but will not have the glory and the name and fame that is associated with GST.
I do not discount the possibility of the government working out a plan-B. Let us really hope that plan B GST could be implemented sooner without the political wrangling that has been associated with it. This GST has been jinxed from day-one and it was jinxed in the UPA government regime and I do not want to blame any party, but clearly consensus was lacking among the states and the centre. Now that division of opinion about the GST and its impact on the state is changing, but the fundamental differences remain—whether they come from Gujarat or Tamil Nadu—does not really matter. The GST model, in my view, with the hindsight of the past decade of debates and discussion is of the type that perhaps India is not ready to embrace that there are too many regional political differences across India and the GST model is only suitable with governments if different states are prepared to work in cooperative manner and overcome this.