TIOL - COB(WEB) - 199
AUGUST 05, 2010

By Shailendra Kumar, Editor

IN a significant development, the State Finance Ministers who are members of the Empowered Committee on GST, have yesterday summarily rejected the Draft Constitutional Amendment Bill sponsored by the Union Government. For most TIOL Netizens it may be a shocking and unexpected development but for many of us in TIOL Editorial it would have been more shocking if the Empowered Committee would have approved it in its present format. The proposed amendment bill which intends to vest the Union Finance Minister with the veto power as the head of the proposed GST Council, contains the embryo of lopsided dynamics of powers. In their zeal to please the Union Finance Minister the North Block honchos had failed to see the writing on the wall - unwilling States being cajoled by the FM to come to the negotiation table. It was well known that as soon as the States get even a small reason to protest against the proposed reforms, they would not miss the opportunity. In this backdrop, there was no chance that they would miss the wood for the tree!

Given the fact that the 'doctrine of consensus' has been the key driving force for the proposed indirect tax reforms, the North Block and the Law Ministry should have avoided showing the red rags to the 'bulls'! Any provision which lends dominant powers and responsibility for one of the negotiating partners in the proposed multi-lateral framework, was expected to evoke strong protest. And this is what has happened. Instead of a veto provision by the Centre, the ideal configuration would be the 'decision-by-consensus' even within the proposed GST Council. There is substance in the suggestion of the Kerala FM when he talked about having a Vice-Chairman post reserved for the States. Even the idea of rotating the post of Chairman between the Centre and the States is not bad, and its feasibility needs to be perused carefully.

Everything is certainly not lost as yet. The Union Finance Minister's battery of top officials just need to sit down with the State representatives, may be for 72 hours at a stretch, and redraft all those provisions which may invite locking horns or shrill protests from the States. Once it is ready, the EC can quickly convene another conclave in the next 10 days, and once the Draft is approved, a Bill can be moved before the Monsoon Session of Parliament comes to an end. The next 20 days are exorbitantly critical for the GST if it is destined to come into force from April 1, 2011. If the EC and the Centre fail to make use of the present Session of the Parliament which would necessarily be referring the Amendment Bill to the Standing Committee, it would be too late to table it in the next session. If Mr Dasgupta is indeed serious about what he has been pursuing for the past several years, he should cooperate with the Centre and meet the historic deadline.

But going by his statement (The Draft in the present form would “infringe upon the financial autonomy” of states), it may be inferred that either Mr Dasgupta has developed cold feet or now wants to play his own set of politics by talking about the alleged infringement of financial autonomy of the States. When all the stake-holders have been negotiating the possible fusion of financial powers of each party, where is the question of any other independent financial autonomy for any of the parties. Even the Centre would be losing its autonomy to amend the Central Excise and service tax rates once the GST is put in place. Mr Dasgupta or others in the EC should be talking about the specific objections to certain provisions rather than alleging any clothed move by the Centre to grab their powers. The entire Draft Bill is not unpleasant. Only a few provisions call for fine-tuning or rewording which can be achieved if party politics is kept at arm's length.

Unfortunately, the shadow of politics appears to be overshadowing the proposed reforms. The Amit Shah episode particularly appears to be ill-timed if one goes by its pernicious effect on the GST negotiations. Gujarat and MP have come out openly against the Constitutional Amendment Bill and do not appear to be in a mood to embrace their tryst with the real GST next fiscal. Many other States supported by the BJP or others have also protested against. Worse, even two of the Congress-ruled States - Andhra Pradesh and Haryana - have frowned at the Draft Bill. The UPA Govt's coalition partner DMK has also joined hands with others to rock the GST boat. All these States need to rise above their territorial and party politics if the GST is destined to be a reality by the next fiscal.

Meanwhile, while addressing the Parliament yesterday and answering questions on the inflation, the Union Finance Minister elatedly talked about the proposed GST system. He said the precious metals, bullion and other similar commodities are proposed to be taxed at 1% under CGST so that the 1% list is common both for SGST and CGST. The Centre proposes to shift the remaining commodities which are in the exempted category under Central Excise to the lower rate of the CGST. The FM also talked about the proposed GST rates, exemption threshold of Rs 10 lakh for both the goods and the services and the threshold for compounding for small traders.

All such talks would be inspiring confidence and hope among the taxpayers provided Mr Pranab Mukherjee makes his moves swiftly and bring back all the detractors to the negotiation table and amend the contentious provisions to the liking of the consensus. Any reforms of this magnitude which is historic by character, calls for Himalayan patience and courage to retrieve even a dying situation to the liking of the future course of events. Let's hope the Union Finance Minister and Mr Dasgupta move quickly to bring the GST talks back on rail!