Jaitley must push the constitutional amendment bill at any cost
India is set to overtake China in terms of GDP growth in 2015-16, on the back of recent initiatives and the drop in oil prices, according to the IMF. The good news doesn’t stop there: wholesale price index (WPI)-based inflation fell to a 65-week low of (-) 2.33 per cent in March because of lower prices of oil, food and manufactured items. And Moody’s has just raised India’s credit rating outlook to positive from stable. Of course, there has been a significant hiccup because of the tax notices slapped on Fils. But the government is reportedly trying to fix this problem.
After the troubled land acquisition ordinance bill, the government has prioritised the Goods and Service Tax constitutional amendment bill as a must-do in its Parliamentary timetable. By subsuming a large number of Central and state taxes into a single tax, GST would mitigate the cascading effect of sales tax, VAT and CENVAT and pave the way for a common national market through seamless travel of goods. A simpler tax regime is keenly awaited by investors and is key to the government’s reforms agenda. In the long run, GST is expected to enhance GDP growth by 0.9-1.7 per cent.
How will this happen? The current system of multiple taxes, with both the Centre and states being authorised to collect taxes and frame rules, was leading to distortion in allocation of resources as well as production inefficiencies. Therefore, businesses that produce their products in one state and sell in another end up paying a number of taxes which, in turn, increase the cost of the final product for the consumer. GST will eliminate this and reduce the end cost of a product.
GST is proposed to roll out by April 2016. As part of the proposed GST regime, the Central sales tax (CST) is being phased out, with its rate already having been reduced from 4 per cent to 2 per cent after the introduction of VAT. The Centre currently collects CST, a tax imposed on the inter-state movement of goods, and distributes it among states. The Centre has included in the GST constitutional amendment bill the compensation which will be paid to states for revenue loss on account of rolling out the new indirect tax regime. Finance ministry sources said preliminary estimates indicate that ?33,000-crore could be the amount payable
to states and Union territories for a five-year period and settling these claims will help create an enabling environment for the roll-out of the new regime.
Till recently, one had the impression that there was a reasonable degree of consensus reached on GST. Unlike the land ordinance, the government seems to be making headway on GST. It pulled off a coup of sorts by getting K.S. Mani, finance minister, government of Kerala, as chairman of the empowered committee of state finance ministers that is steering the procedure. Mani represents one of the constituents of the ruling coalition of Kerala headed by the Congress. He also holds the record of having presented the maximum number of 13 budgets as finance minister. Mani’s rivals for the chairmanship of the committee included Y. Ramakrishnudu (currently finance minister, Andhra Pradesh), Haseeb Drabu (Jammu & Kashmir) and Amit Mitra (West Bengal). But the government plumped for him because of his proximity to the Congress. Mani’s job would be to get petroleum and petroleum products, which were excluded from the GST, to be included in the list after the new tax kicks in.
But the Opposition parties, on the day Jaitley tabled the bill in the Lok Sabha, started demanding that it should be referred to the parliamentary standing committee since it involved changes to the Constitution. This appears to be a tit for tat. During the UPA regime, then finance minister P. Chidambaram’s efforts to push GST had been similarly stalled by the BjP-ruled states, led by Gujarat and Madhya Pradesh. But Jaitley should push the bill in the current budget session of Parliament itself. The constitutional amendment bill has to be passed by a two-third majority in both houses of Parliament and then approved by more than 50 per cent of the states. All the subordinate amendments drafted, circulated, accepted by all state governments need to be presented before Parliament in the course of the year. The next step would be the setting up of the GST Council, which will decide upon the modalities for the resolution of disputes arising out of its recommendations. Between now and April, Jaitley needs to make a go of it. ♦