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GST - When 'Pati, Patni & Woh' are in agreement, why is the delay?

TIOL - COB(WEB) - 187
MAY 13, 2010

By Shailendra Kumar, Editor

LIKE the Direct Taxes Code (DTC), the Goods & Services Tax (GST) is also a certainty for India! But a glaring difference lies in the Time Zone! For the DTC, the Union Finance Minister could set the deadline of April 1, 2011. But for the GST, in his Budget Speech he promised the House to make ''earnest endeavours'' to realise the same deadline. Strangely, or call it an ugly twist of fate for the GST that though the Centre, the States and the Trade & Industry are all in agreement on the basic question of adopting the dual system of GST but the certainty in its implementation continues to elude us.

The good news is that after a mysterious lull of almost four-and-half months the Empowered Committee (EC) of State Finance Ministers is scheduled to meet on May 21, 2010. The fact that the EC has taken almost 150 days to schedule its next meeting, tells us the untold tale of deep-rooted differences among the States over a large basket of issues. Though there has been no official statement from the EC on any issues of differences among the States but it is also not difficult to see through the unpretentious veils of secrecy maintained by some of its members. What is going to be the EC's agenda is not yet clear. One would perhaps come to know about it only on May 21st.

Meanwhile, it is learnt from the sources in the EC that the States like Punjab and Haryana continue to be stubborn in their response to the proposal that the Purchase Tax may be subsumed in the GST. For other States, subsuming alcohol and tobacco is not acceptable. Why? What defies the logic is that when the Centre has agreed to loosen its compensation purse if the States lose revenue on account of abolition of these, where is the question of 'entertaining any fear' of revenue loss! Is it revenue loss or something else that bothers our States more? Is it the revenue leakage or unaccounted money which attracts our State politicians more? When the Centre has agreed to allow States to levy State Excise Duty on alcohol over and above GST, where is the space for disagreement with the Centre.

Let's move to some hardcore legal aspects of the GST issue. Constitutional amendment is going be a major step forward in the direction of GST implementation. TIOL Netizens amy recall the words of EC's Chairman Asim Dasgupta at the time of the official release of 'First Discussion Paper on GST' last year when he had announced the deadline of November 15, 2009 for Constitutional Amendment, and November 30 for CGST and SGST legislations. It is a widely known fact that the Indian Constitution has to be amended in order to give fiscal power to levy service tax by the States and VAT by the Centre. Since the Concurrent List states that in case of any dispute the Parliament will prevail over the State Assemblies, there is a need for a Fourth List which would allow equal authority to both the Centre and the States to levy taxes. Since the Constitutional amendment was delayed, one school of thought at the Centre was to make a Presidential Reference to the Supreme Court before an amendment is moved to tinker with the basic structure of the Constitution. However, it is learnt that the Centre has now jettisoned this idea and decided to directly move the amendment in Parliament.

Another amendment which would be required if VAT experience is anything to go by, would be for creation of a GST Council to enforce discipline on Centre and States before they tinker with the tax rates. Whether it is BJP-ruled State or UPA-ruled State, fiddling with VAT rates has become a hobby for most States. And one of the reasons they seem to be doing it for is to demand more compensation from the Centre for the supposed losses they may incur if they switch over to GST. No doubt, the Centre will have to call the bluff, and to avoid a repeat of the history, such a Council is required to be headed by the Finance Minister, and State FMs can be its Members. Its decision has to be legally binding on all the stake-holders.

Amendments apart, what seems to be baffling most GST observers is the fact that why has the Centre not done anything concrete so far? The States have proposed a threshold limit of Rs 10 lakh for exemption. It is now Centre's turn to respond to the EC's suggestion. True, the EC has urged the Centre to stick to Rs 1.5 Crore bracket but it is not obligatory for the Centre to accept that suggestion. In the interest of uniformity and minimal complications, the Centre should also announce its agreement with Rs 10 lakh threshold limit. Once such a limit is decided, it would help size up the taxbase which would in turn enable the stakeholders to work out the Revenue Neutral Rate

Most importantly, deciding the exemption threshold limit would help the Centre and the States to work on the IT Infrastructure. It is a gigantic task, and it cannot be successfully implemented in the leftover months before April 1, 2011. Having fathomed the complexity of the GST project, the FM, in this year's budget, has set up Technology Advisory Group for Unique Projects (TAGUP), headed by Mr Nandan Nilekani. In fact, Mr Nelekani was last week in North Block, and had his first one-to-one interaction with the GST team of CBEC. He knows that building IT Infrastructure for about 50 lakh assessees and capturing billions of transactions and their invoices would be an uphill task.

Notwithstanding the many impediments the GST is faced with, TIOL is hopeful that if the Centre breaks the ice and takes a few steps forward, the States would also come forward. The Centre indeed has very little time left if one goes by the reality of state elections Mr Asim Dasgupta will be facing next year. Given the prognosis of unpredictability elements about West Bengal polls, it is important for the Centre to back him fully as he alone can bring warring and battling States to the floor where negotiations could take shape. Let's hope all the stakeholders of GST finally join their hands together to gift India the much-awaited New Indirect Tax System.