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GST Roll-out: States fail Indian Economy - Dasgupta proposes 'Interim Arrangement' - FM rejects it

TIOL - COB(WEB) - 207
SEPTEMBER 30, 2010

By Shailendra Kumar, Editor

FOR the majority of TIOL Netizens, the proposed Goods & Services Tax (GST), after the well known outcome of the last meeting of the Empowered Committee of State Finance Ministers on September 20, has turned into an unreal 'reality' or call it surreal! Although EC's erudite Chairman, Mr Asim Dasgupta, claims to be a die-hard optimist and is reportedly looking for a desperate breakthrough at the next meeting on October 27 in New Delhi, but if one goes by the content of his letter dated 28/08/2010, addressed to the Union Finance Minister, our States do not appear to be serious about any deadline, leave aside April 1, 2011. It is learnt that after being persuaded by various States, particularly the dissenting ones, Mr Dasgupta wrote a letter to Mr Pranab Mukherjee, seeking consensus on an 'Interim Arrangement' if unanimity continues to be a mirage for a full-fledged GST.

The crux of his letter is that if States and Centre continue to bicker over the proposed Draft Constitutional Amendment Bill, it is time to make intelligent use of an amendment done years back whereby the Centre can vest powers in the States not to levy but to only collect service tax for certain identified services. Mr Dasgupta's idea of an 'Interim Arrangement' is that if Centre allows the States to collect service tax, the States which have the authority to collect VAT, may allow input service credit to VAT taxpayers! And once such an 'intaxicating blending' is achieved, the fully-brewed product would be a 'raw version' of the GST which is the ultimate destination for all the talking parties.

It is learnt that the Union Finance Minister got aghast with such a proposal which intends to realise a skewed objective. The FM has sent back his reply to the EC, rejecting the Doctrine of Interim Arrangement on various grounds like it is not workable; what would happen to realising the goal of a unified market; and what about the Central Excise duty - how will the economy avoid paying tax on tax - the cascading effect!

Although the States would apparently have no answers to these questions but the vital question is why should such an intelligent and erudite politician like Mr Dasgupta propose such a skewed and terribly distorted version of the proposed reforms. Mr Dasgupta who had an enviable joyride of great success in making VAT a reality for the Indian States, seems to be running against some deadline (probably set by Didi), and in the bargain, he probably bought this proposal from some States. This proposal is also akin to the 'Alternative GST Model' which was elaborated by the Madhya Pradesh Finance Minister Mr Raghavji at the last meeting when he talked about getting powers from the Centre to collect service tax and once they have both the VAT and Service Tax where was the need for a GST?

Informed sources who know Mr Dasgupta from close quarters say that the West Bengal Finance Minister probably does not want to exit EC by carrying the baggage of unrealised dreams. For a man who has tasted the 'blood of success' in the case of VAT, the collective failure to make GST a reality would also be a personal failure for Mr Dasgupta. What also may have weighed heavily in his mind is the spectre of change in the power equations arising from the forthcoming state elections in West Bengal.

Anyway, if it is not a set of personal reasons, then what seems to have inspired our States more is probably what Pakistan is going to implement from October 1, 2010 - General Sales Tax (GST). Although Pakistan is globally vilified for being a failed State but in case of India, it is our own 'STATES' which have failed the economy. Political reasons apart, all the States well neigh know that the GST is the most radical and ambitious tax reforms ever conceived and planned in India. They also know about the bagful of low-hanging fruits the States would be plucking along with other stake-holders if the proposed reforms are fully implemented. Knowing all these, they do not want to commit for something which promises good to the entire economy. How such an approach should be seen and interpreted can be left to the wisdom of common voters in the country.

Let's go to the possible agenda for the next meeting on October 27 which is going to be held in Delhi and not Goa, as was being talked about initially! If Mr Dasgupta and his team-mates show the correct reconciliatory spirit, and give their nod to the Draft Bill, the Centre can immediately table the same in the Parliament during the Winter Session. After the Select Committee applies its mind to the content of the Bill, the same can be passed during the Budget Session. Afterwards, the work on model legislation can be expedited, and a Bill can be introduced only during the Monsoon Session in 2011, and that is how most politicians seem to be talking about October, 2011 as a possible deadline.

But the larger question is - Are EC Members going to arrive at New Delhi with the necessary arc of accommodating Centre's viewpoints, and the determination to arrive at a consensus so that the GST ball could be seen rolling out once again. None has an answer! Even Mr Dasgupta may not admit such a radical change in the attitude of particularly the dissenting States. If reconciliation is not a goal, why should our State FMs waste their limited VAT resources on fruitless meetings. It is probably time now that VAT taxpayers should question them under the RTI Act. This is probably the last chance for Mr Dasgupta to leave his imprints in the fiscal history of tax reforms in India. Will he come up to general expectations this time?