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GST - 'Pati, Patni & Woh' syndrome - Episode II

TIOL - COB(WEB) - 188
MAY 20, 2010

By Shailendra Kumar, Editor

IN the last week column TIOL reported that the Empowered Committee of State Finance Ministers, headed for Mr Asim Dasgupta, was going to finally meet on May 21st after a gap of 150 days. Like the proverbial lull before the storm, here comes a flurry of GST activities at the Centre and also at the EC-level. The various Working Groups of the EC are scheduled to meet today and pick up the threads left in the last meetings sometime in January. These Groups comprising officials from the Centre and the States are expected to discuss the issues ranging from exempted lists of items and constitutional amendment to the size of IT infrastructure. The final outcomes of these Groups are expected to dot the agenda being prepared for the EC's meeting tomorrow.

Unlike the previous EC's meets, this one is going to see the presence of the Finance Minister's Chief Economic Advisor, Prof Kaushik Basu. Mr Basu besides expressing the Centre's key concerns, is expected to participate in the deliberations and allay the fears of States on issues like inclusion of tobacco, alcohol and natural gas, and also exempted lists of items. In a nutshell, Mr Basu would be carrying the mandate of the Finance Minister and also the list of issues which need to be sorted out on top priority if the GST is going to be a reality by April 1, 2011. Netizens may recall that Mr Asim Dasgupta had met Mr Pranab Mukherjee last week and had one-to-one tete-a-tete on a large basket of issues, including GST. What transpired between them is not clear but it is a known fact that the FM had handed over a list of concerns to Mr Dasgupta who was told in no uncertain terms to finalise some of them at the forthcoming meet on May 21st.

One of the major issues which the EC is expected to discuss on Friday is the list of exempted commodities. The States have a list of 99 items whereas the Centre has a list of 332 exempted items. States have shown their keenness to prune their list to about 68 but want the Centre to retain its same list of items. Such a wish cannot be honoured by any negotiating party in any deal. On the one side the States want to garner extra revenue by slashing their list of exempted items whereas they want the Centre to continue to bleed by exempting the same number of items. It would be ideal and mandatory that both the parties agree to the same number of items so that the scope of revenue leakage is not left open.

As regards items like alcohol, petroleum and natural gas, there are sharp differences between both the parties. Though the Centre is firm on bringing natural gas under the GST, the States are not very keen. Why? What is the rationale? Are they more keen to protect the interests of some private parties rather than caring for the public interest whereby Credit can be availed on tax paid on natural gas as an input in relation to manufacture. Similarly, alcohol is another bone of contention. Ideally, all these contentious items may be left out of the first round of GST implementation if consensus continues to elude the negotiating parties.

Let's wait for the outcome of the Friday's meeting before any concrete comments can be made. Meanwhile, the Centre has taken the tempo of GST preparation to a new crescendo. And the credit for the same goes to the Revenue Secretary, Mr Sunil Mitra, who landed up at CBEC Chairman's room and held a meeting with the CBEC's core group of Members and JSs few days back. In the past 12 days, Mr Mitra has held more than 10 meetings on GST, and has made it clear to all observers that the Centre would not lag behind in preparing itself for the final roll-out. True, the Finance Minister who could make a statement yesterday that the DTC Bill would be tabled in the House during the Monsoon Session of Parliament, cannot be so firm about the GST roll-out but he has said that there are 28 masters of the GST and the Centre is merely one of them.

However, on its part, the CBEC is fully geared to take a plunge and has decided to form a dedicated group of officers which would assist the two Members - Member (CX) and Member (Budget) - by digging out the technical details and solutions to various issues. This Group would be headed by former JS (TRU) Gautam Ray who has been appointed as a Consultant by the Government. Mr Ray will be assisted by the chosen five Addl/JCs who would do the spadework.

For the IT infrastructure, the CBEC has already held two meetings with the Chairman of Technology Advisory Group for Unique Projects, Mr Nandan Nilekani, in the past three weeks and is expected to hold another meeting in the first week of June. It is well known that the GST can become a reality only if the IT infrastructure is in place. This is more acutely required for implementing the IGST which would require capturing of billions of invoices for extending the credit facility to the trade and industry. Given the fact that only about 10 months are left for the final roll-out, it would be far-fetched to believe that any robust IT architecture can be put in place. In the backdrop of such ground realities, Mr Nilekani can at best focus on IT platform only for the IGST, and for others, manual filing of returns etc can continue for sometime.

What about the third member of this 'Pati, Patni & Woh' triangle? Going by the tempo of preparations at the Centre, it appears that major chambers of business like CII and FICCI, influential stakeholders of the GST system, have not shown extraordinary enthusiasm to participate and assist the negotiating parties in arriving at a solution. It is important that all the major chambers and association of industries and trade put pressure on the States to speed up the wheels of agreement on various components of the GST so that April 1, 2011 could be converted into an achievable milestone. It would be ideal for business chambers to form pressure groups which would regularly meet various State FMs and Chief Ministers and educate them about the much-needed indirect tax reforms. Unless public pressure is built up on the States, recalcitrant states, short of vision, may derail the entire reform process. It is high time the Centre also educates the Chambers to take such initiatives if the GST is expected to be co-terminus with the DTC!

(Also See: GST - When 'Pati, Patni & Woh' are in agreement, why is the delay?)