When the United Progressive Alliance (UPA) government mooted the idea of a Goods and Services Tax (GST) in 2009, acting upon the recommendation of the Vijay Kelkar Committee for a single GST replacing cenvat\excise duty, sales tax and service tax, the BJP-ruled states, especially the then Gujarat chief Minister Narendra Modi, fiercely resisted the move. Their contention was that a GST regime will engender fiscal suicide for the states.
Now the tables have turned; Narendra Modi, as prime minister of India, is the prime protagonist of the GST cause and the Congress, as the main opposition party, is doing everything to derail, or at least delay, the onset of the GST regime.
Clearly, GST has become the political football. To garner their political mileage, parties have changed positions. When the BJP was in the opposition, it had raised federal concerns; the fiscal freedom of the states would be muzzled by an overbearing centre in a GST regime, the BJP had argued then. But now as the party rules at the centre, it assures the states that co-operative federalism would take care of their concerns.
The Congress, as the ruling party, had held out the same hopes; it had assured the opposition parties that GST provisions provided enough safeguards for the states. But the Congress in opposition is on an obstructionist course; it is supposedly taking a pro-poor stance – it wants GST rate to be capped at 18%. It had not made any such proposal when it was in power and when it broached the GST idea.
Clearly, for each of the two major parties of the country whether it is in power or in opposition determines its precise position on issues of national concerns. The fact that each of them while in power has assiduously advocated the GST cause makes it clear that for the union government it is a major instrument of fiscal consolidation.
The fact that most non-Congress and non-BJP state governments (with the exception of Tamil Nadu) have come round to accept the GST, irrespective of whether the Congress or the BJP is in power, tells us that there are no inherent biases against the states in a GST regime.
In effect, GST — minus the partisan politics of both the Congress and the BJP – seems to be a win-win proposition for both the states and the centre. The question is this. Is GST a desirable proposition for India?
It is important that we debate it in public forums; so far, it has been slanging match between the BJP and the Congress; neither party has made it a public issue. For instance, neither the BJP nor the Congress made the GST an election issue, whether in the Lok Sabha elections in 2014 or a series of state elections thereafter. It suggests that both the parties do not take the electorate seriously; on an issue of national and federal concern, neither party feels the need to take the public into confidence.
This is unlike the situation in several countries. Take the case of Australia: the ruling Liberal Party mooted the GST idea in 1990. But it did not just go ahead and make the legislation. It presented the draft legislation for public discussion. That was not all. It sought a mandate for GST from the electorate; so it made GST the centerpiece of its electoral campaign in the 1993 election.
The Labour Party in Australia had opposed the GST move in the legislature. It went to the people explaining its negative effects on the poor in the 1993 election. The Labour Party succeeded in creating a public distrust of the GST; Liberals lost and Labour won and the GST was buried for some time.
In the 1998 election, John Howard, the new Liberal Party leader, resurrected the issue of the GST. He came forward with a series of proposals to offset the adverse effect of the GST on the relatively less well-off sections. The Liberal party did not win an outright victory but, with the support of some minor parties, it formed the government. The GST regime was set in motion on 1st July 2000.
It is just not the introduction of the GST that has been a subject of popular mandate; changing the rate of tax has also been a subject of intense debate in several countries.
In the last decade and a half, several efforts have been made in Australia to increase the GST rate to 15 percent or at least 12.5 percent, but the Labour party has offered stiff resistance. The GST is stuck at 10 percent as no party is willing to face the public wrath.
Take the case of Canada: In 1989, the then government mooted the idea of a GST pegged at 9 percent. After huge deliberations, the GST regime was unveiled in Canada on 1st January 1991, but the tax rate was brought down to 7 percent to assuage the concerns of the poor.
Even the 7 percent GST rate was not acceptable to many people; the government was virtually forced to bring it down to 6 percent in May 2006. Still the popular pressure did not abate; the government had no option but to bring the tax rate further down to 5 percent in January 2008.
Let us take the case of New Zealand, one of the few countries where the GST is pegged at a high 15 percent. In 1986, the GST was introduced in New Zealand at the rate of 10 percent (though the government had initially proposed a 12 percent tax) after a prolonged public debate.
In 1988, when the government raised the GST rate to 12.5 percent there was so much uproar that the minister of finance was sacked; later the prime minister had to resign.
In 2010, after almost two decades, when the government pleaded for raising the tax again to 15 percent, the strong popular reaction forced the hands of the authorities to reduce the rate of the personal income tax and to introduce the family support tax credit for low-income workers and for the unemployed on a national scale.
Look at the contrasting case of India. People here blithely accept the increase in tax rates by successive governments. And look at the gall of the ruling political class. It wants to impose a regressive tax even well beyond 18 percent without any corresponding countervailing measures to aid the unemployed and underemployed citizens of the country, and, that too, without a whimper of popular protest!
It points to just one thing: the democratic voice is dead in India.