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'GST in India' - A Tale of Three 'Bowls' of Conflict

TIOL - COB( WEB) - 395
MAY 08, 2014

By Shailendra Kumar, Editor

EVEN as the penultimate round of voting gets over, and the Nation moves closer to 'finding' the right political party to form the Next Government at the Centre, it is not uncommon to hear sporadic statements on Modern India's most ambitious indirect tax reforms - introduction of Goods & Services Tax (GST). Although the UPA-II failed in its efforts notwithstanding the sincere efforts made by the then Finance Minister, Mr Pranab Mukherjee and the West Bengal Finance Minister, Mr Asim Dasgupta and later by Mr P Chidambaram and Mr Sushil Modi of BJP but this does not call for political pessimism about the next government. The BJP's Prime Ministerial candidate, Mr Narendra Modi, has given a public statement that if his party comes to power he will implement GST. More importantly, almost-the-inevitable Opposition Party in the Parliament - Indian National Congress - has expressed its view that politics will not come in the way to support GST implementation. It indeed sounds interesting that although creation of GST is essentially going to be a resultant of political conflict of interests but all political actors have been promising non-politics for hastening its birth!

Very similar to the fiscal history of all those countries which have gone for GST (Malaysia has recently notified January 1, 2015 for its implementation), India is also witness to eminent facets of melting political potboiler over this issue. A quick scan of the entire spectrum of eight years when it was first announced, reveals that the journey of the unborn GST in India has inevitably been a tale of political wrangling's and well-designed bungling's to delay and derail this reform process. Of course, the two UPA Governments and the Empowered Committee of State Finance Ministers may take solace in the fact that they had crossed many hurdles and would have 'subsumed' many but for the obstinate political snobbishness. Of course, the tale of embryonic evolution of GST so far has been an interesting 'folklore' of clashes among political 'titans' who preferred to guard their own 'personalised' fiscal turfs rather than the Pan-India interests. Although political arrogance may be shortlisted as one of the villains for the delayed GST, it does not mean that nothing has been achieved so far. For the record sake, both the Centre and the States have a large basket of achievements to their credit which can be seen from the level of Constitution Amendment Bill and a Revised Bill.

The technical evolution of GST has incidentally been wonderfully and exhaustively captured by the latest book 'GST in India' authored by the CBEC former Chairman, Mr S Dutt Majumder, and published by R K Jain's Centax Publication. Since most of the critical developments in terms of finalising a Roadmap or the Release of the First Discussion Paper or drafting of the Bill or conceiving the concept of a GST Network took place during the regime of Mr Pranab Mukherjee, and since Mr Majumder was there, first as the Member (Central Excise) and then as the Chairman, this indeed makes him the most well-informed and eligible author to write an authoritative book on this subject. And indeed, he has done justice to all round developments on this topic so far by capturing them in less than two-digit Chapters. Starting with - 'The arduous journey begins!' and followed by the useful technical structure and international perspective; forms of GST in India; GST treatment of inter-state movement of goods and services; GST legislation; travails and tribulations of the journey; robust IT infrastructure; the constitutional amendments and ending with the challenges ahead, it makes it a complete and 'intaxicating' reading for all those who have even remote interests in this subject. For readers cutting across the trade, the industry, the MNCs, the academia and also the Departmental officers, some of the Chapters are so exhaustive that it makes it a valuable training input for tax-bitten as well as tax-biting hands in the Central and also the State tax administrations.


The author has not left any piece of deliberated and recorded thought process on this subject. He has also cited to some of the most popular and internationally accepted perspectives on this issue. As the saying goes - a bit of history makes the reading spicy, the author has been reasonably liberal in using the 'spices'. Picking up valuable outlines from various official and authoritative documents he has compiled them together for the ease of the readers before they are ushered in a more complicated matrix of technical and political deliberations. How painful has been the search for a comprehensive conceptual framework for GST legislation has been insightfully elaborated with valuable observations. He has devoted adequate space to hammer the point that how a robust IT infrastructure is going to be most critical for implementation of the proposed reform. In other words, even if the Centre and the States tomorrow join hands to do it immediately, it may be delayed unless a tried and tested network is put in place to make it happen. Even if all political, legislative and administrative hurdles are pulverised overnight, GST cannot be metamorphosed into a reality tomorrow without a robust and reliable NETWORK where taxpayers could register and pay taxes. The author has lavishly elaborated the details of the Constitutional amendments and the Revised Bill prepared after lending good space to the recommendations of the Standing Committee headed by the BJP leader, Mr Yashwant Sinha. And, finally, he has been quite realistic in sketching a series of 'Challenges Ahead'.

Although the author has prognostically created realistic skeletons of challenges ahead but for the benefits of TIOL Netizens, I would like to share my perspective by broadly grouping these challenges into three categories - 1) Centre vs States; 2) Developed vs Developing States; and 3) IRS vs IAS.

Let me now peel off some of the facets of the historic conflict between the Union of India and the States for greater transparency and easy understanding of the subject. Given the UNITARY bias within the matrix of federalism in our Constitution, the history of Independent India has been a story of regular tussle for snatching a few pounds of sovereignty/autonomy by the States and explicit demonstration of dominant 'etiquettes' by the Centre. Since States have been given limited fiscal turf in terms of the bare minimum ENTRIES in the STATE LIST of the Seventh Schedule of the Constitution, they are very wary of losing their real-politick existence. They believe that if they lose the powers to tax or to exempt their political constituencies, who would care for them? What reinforces their apprehensions are the transformed political realities of regional parties grabbing powers in many States. Unlike the National Parties which 'earn' sumptuous donations from large industrial houses, the regional parties have to bank on small and large traders and contractors in the State to fund their poll expenses. Once the power to return their favour is gone, no dealer or trader will pool in 'donations' for them. In this backdrop, yet another bone of contention - exclusion of alcohol - can well be understood. Given the fact that a large number of State politicians are either directly or indirectly involved in running the liquor trade, where the State Governments play their favourite 'licensing computer game', if liquor is brought under the regime of GST along with Petroleum and its products, it would further curtail their fiscal turf to trim their thirst for autonomy. It is easier said by a bureaucrat-turned politician in the National Capital that the Congress Party will support GST even if it sits in opposition. This brings us to the so-called bogey of revenue loss raised by the States which have called for a mechanism of compensation to be inserted in the Constitution Amendment Bill. Since compensation cannot be an eternal reality, it is indeed unfair on part of the States to demand such an insertion in the Constitution.

Let's move to the second 'bowl' of conflict. Given the fact that GST is going to be a consumption tax to be collected at the door of consumers, most developed (or call them industrialised) States fear that they would lose their revenue to poor and over populous States like UP, MP, Bihar, Orissa and West Bengal. Their fear is not unfounded but the biggest benefit these States reap is that they generate huge employment for their own people and others from the labour-surplus States. And once these hands get paid regularly, they would boost the local demand for goods and more consumption would mean more collection of GST. So, such a myopic view by rich and industrialised States prominently make their objections look frivolous.

And the third issue for tug-of-war is the control of the new administrative behemoth. Although the natural claimant for such an administration happens to be the IRS but the Indian Administrative Service (IAS) is not keen to lose such a powerful and 'lucrative' turf to somebody which is seen 'inferior' and 'emaciated' by them. The intra-service tussle has been going on for many years, and it has been one of the reasons for slow preparedness for GST implementation. The IAS has already captured the first 'fort' of strategic power by grabbing the posts of Chairman and MD of the GST Network created through a Special Purpose Vehicle. At present the Revenue Headquarters represents the Centre in all talks with the States and frugally consults the CBEC which believes that they are the natural and original inheritor of the proposed structure. In this rivalry what has suffered is the quality of preparation. While drafting the GST Law, the babus have been doing it themselves where ideally, it should have representation from the judiciary, the trade & industry, the academia and the bureaucracy. A special task force should be set up to balance the language and the spirit of the new law rather than leaving it to babus who leave too many chinks in their drafting. If they involve a retired judge of a High Court it would have balancing impact on the drafting as our judiciary is known for following the doctrine of rule of laws and equity. Similarly, representations from the trade and industry would infuse the facilitation features in the Act itself. Unless a pragmatic approach is adopted by the new government, any attempt to push through this babu-drafted legislation may usher in a new era of litigation and amendments for what is now billed as the biggest indirect tax reform in the country. Let's hope the new government adopts a fresh approach to take all stakeholders together and finally kick-starts a new journey, welcomed by all!