OCTOBER 29, 2013

By Sumit Dutt Majumder

THERE was optimism in the air about a month back regarding the introduction of GST, when people had great expectations of GST coming within one year of formation of the next government after the 2014 general elections. The basis of such optimism was that the Standing Committee of Parliament on Finance comprising members from all political parties had in its Report on the Constitutional Amendment Bill on GST, made an unequivocal endorsement of the Dual GST structure and it had also allayed the fear of some States about loss of fiscal autonomy. Subsequent prompt action by the Centre in revising the Amendment Bill after accepting most of the substantial recommendations of the Committee further strengthened the air of optimism. Since the Committee had prepared the Report after consulting all the stakeholders, including the States, it was expected that the States would give their nod to the Revised Bill prepared by Centre in the meeting of the Empowered Committee of State Finance Ministers (EC) held on 21st October, 2013.

But, that did not happen. Reportedly, the States insisted that Petroleum & its products and Alcohol should remain excluded from the ambit of the GST in the Constitutional provision itself. That would imply that if the future generation wants to be more sensible in bringing these items within GST, it would have to go through the drill of Constitutional amendment as per Article 368, which is not an easy process. The proposal to subsume ‘Entry Tax' including Octroi within GST has also been turned down by the States. More than half the States have not yet presented their views on the Centre's Revised Bill, and are expected to do so in the next meeting of the EC in Meghalaya on 15th November. If they also take the same stand and express reservation on Centre's Revised Bill then there is very little chance of presenting and clearing the Bill in the Winter Session of the Parliament. Going by the happenings so far, it would be only a hard-core optimist who would hope that a salubrious place like Meghalaya with its hospitable people and pleasant ambience would be able to facilitate a miracle of consensus in bringing out an agreed revised Bill that could be cleared in the Winter Session! The general elections will follow soon after the Winter Session, and if this Session is missed, one will have to wait for the next government after the elections to proceed further on this. So, the wheels of the GST chariot are stuck again.

Time and again, Centre has explained to the States that inclusion of Petroleum and its products and Alcohol, and subsuming of Entry Tax/ Octroi in the GST would not dent the revenue of the States. In the case of Petroleum & its products and Alcohol, both the Centre and the States would be at liberty to levy Central Excise/State Excise duties in addition to GST, just as Centre had agreed to levy Central Excise duty in addition to GST on Cigarettes & other Tobacco products. This approach is acceptable in the international VAT/GST regime, since Tobacco and alcohol are ‘demerit goods' with respect to public health, and Petroleum and its products are environment pollutants. Petroleum & its products constitute a major chunk of inputs for various industrial and service sectors. Similarly, Tobacco and Alcohol industries use many inputs in the form of goods and services. Keeping them outside the ambit of GST would break the Input Tax Credit chain to the detriment of all these sectors. As for Entry Tax/ Octroi , there is no logic for its retention, even as the country goes for common economic market through GST. It is reliably learnt that Ethiopia is the only other country in the world which has retained Octroi . As for the fear of revenue loss, experience with State VAT has shown that revenue collection of the States increased manifold after introduction of VAT. In any case, successive Union Finance Ministers have been giving assurances that the States would be appropriately compensated in the event of revenue loss on introduction of GST. The Fourteenth Finance Commission may be tasked to work out the details of the revenue loss, if any, and its apportionment amongst the States.

Another disturbing trend is the reported opinion of some States that the Centre should not push GST before the general elections in 2014, and should leave such an important issue for decision by the next government. One finds it difficult to accept such a proposition. The present Government has its mandate till the next general elections, and it is well within its jurisdiction to continue to perform its duties till the next Parliament and the next Government take over. If the aforesaid proposition of some States is accepted, then the present Government cannot take any policy decision in the interim. This proposition is not correct. Very recently, the Government has set up a Committee for administrative reforms in taxation, and rightly so. There was no need to wait for the next government to do so. Similarly, the process of introduction of GST has to go on without waiting for the general elections. It's a different matter if the next Government takes a different view, and changes the policy. In the case of GST however, that possibility is very remote since an all-party Parliamentary Committee has endorsed the proposal for introduction of GST with Dual GST structure. Therefore, whichever party or group of parties form the government, the introduction of GST seems to be inevitable and inescapable. So, why waste time till the next general elections.

Seeing the reported trend of discussions in the recent meetings of the EC, which indicates further endless negotiations between the Centre and the States on unresolved issues, one is tempted to revert to the views expressed earlier that the suggestion of Sijbren Cnossen , the international expert on VAT/GST be followed so that the Centre can plan its own GST, a broad-based one encompassing all the Central indirect taxes except Customs duty, and covering all goods in the Union List including Petroleum, Tobacco etc. Although the post manufacturing stages from factory gate to the retail consumers will not be covered, yet the taxpayers will then pay only one Central indirect tax and face only one tax authority. This measure will not warrant any Constitutional amendment, and it can be planned in Track Two, while efforts may continue in Track One for ushering in the Dual GST in due course. Cnossen pointed out that after seeing the success of the Centre's GST, the States might ‘piggyback their GST on the Centre's GST' and that ‘the State GST reform would, and probably should be a process of learning by doing, and that reform would be ‘easier with an overarching modern GST at the Central level'.

Going by the way the negotiations are proceeding for introduction of GST, one feels that Cnossen's suggestion could not have been more appropriate and more timely . As mentioned, the wheels of the GST chariot are stuck. It needs the extra push for resuming its journey, - if necessary through lateral thinking. And, the way forward under the constraints seems to be a Central GST for all the Central Indirect Taxes, - of course as a starter. People surely do not want to identify the GST with ‘ Godot ' who never came, even as Vladimir and Estragon, the two characters of the play by Samuel Beckett, waited endlessly and in vain!

(The author is Indirect Tax Ombudsman, Delhi and former Chairman, Central Board of Excise & Customs; Views are personal)