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Formation of two more Committees - Does it mean that Centre & States are not GST-ready?

TIOL - COB( WEB) - 453
JUNE 18, 2015

By Shailendra Kumar, Editor

EVER since the movement of GST Bill (Constitution Amendment Bill) was halted and the same was referred to the Select Committee, the general perception about the GST time bound roll-out got rooted in scepticism. It is now common belief that the NDA Government would not be able to meet the April 2016 deadline under any circumstances. What goes to lend credence to such a ground level nationwide perception is yesterday's announcement by the Ministry of Finance. And the Official Press Release stated that the Union Finance Minister has approved the formation of two high-powered Committees - one on the possible GST rates and the other on the IT preparedness. The GSTN (GST Network) Committee is going to be co-chaired by the representatives of the Centre and the States. The most critical committee which is going to suggest the GST rates is going to be headed by the Chief Economic Advisor, Mr Arvind Subramanian who was recently very critical of the one per cent additional tax provision in the Bill.

While announcing their appointment, the Ministry of Finance also let the cat out of the bag. And the 'CAT' consists of an ocean of works which are yet to be done for full-fledged introduction of GST. If one claims that the part of the work is already done or is about to be done, an element of truth can be attached to such a statement only when the 'work' done is unveiled for public consultation. Nothing can be said to be done until the same is vetted by the most critical stake-holder i.e the GST tax payers. Let's study the works being assigned to these committees. The GST Rates Committee is expected to keenly study all the possible matrix of parameters and suggest a band of possible rates which must be consistent with the current level of revenue collections by the Centre and the States. While wrapping up such a Study in a span of 60 days, this Committee is directed to take into account the expected levels of economic growth, different levels of compliance and broadening of tax base. This committee is also going to look into the Sector-wise and State-wise fall-out of GST on the economy.

By any standard the task assigned to the Chief Economic Advisor is not less than Himalayan in size. What makes it uphill in nature is the 'strangulating' deadline being set. And it was probably driven by political compulsions rather than the desire for a quality work which is so uncompromising at this stage for a less glitchy tax reform. Given the large plate of studies to be done - Sector-specific & State-specific impact; the history of tax compliance; the possible expansion in the tax base and the possible GST rates, what has gone unstated for this committee is the task of 'inventing' the revenue neutral rate (RNR). Unless the RNR is decided, no GST rate can even be speculated about and same can be consistent with the quantum of present revenue kitty. This brings the Committee to the next logical question - unless the exemption threshold is politically decided and the lists of exemptions and zero-rated items are agreed upon, how would this Committee really make its findings relevant and acceptable to all the stake-holders? Does it mean that like many other Committees set up in the past, this is also going to be sharing the same fate of being merely an academic exercise!

Let's now go to the second committee which is to be co-chaired by the Additional Secretary, Revenue Headquarters, and the Member Secretary of the Empowered Committee on GST. This panel will monitor the progress of IT preparedness of GSTN, CBEC and the state revenue departments; finalisation of reports of all the sub-committees formed to work out the mechanics of GST, drafting of CGST, SGST and IGST laws and Rules; to hold interactions with the trade and industry and also decide on training of officers. Going by the nature of the task assigned it appears that this Committee is going to exist in perpetuity - at least till the time the GST is introduced and made if not flawless but least flawed. Again, it goes to indicate that there are too many 'works' pending and they need to be expedited even if some sub-committees have been working on them. The GSTN is beyond debate going to be the most critical 'work' for ensuring smooth roll-out of the GST. But if one goes by the woeful under-performance of the ACES it may appear that the GSTN is unlikely to make a grand beginning. The fact that the key business processes are yet to be finalised and thrown open for public debate, the work on GSTN has logically not rolled out. Although the GSTN body is in existence for some years and has also full-time key functionaries but the key areas of their functions are not yet agreed upon. In this background the GSTN forum may not be blamed if they have not moved beyond a few deliberations with possible vendors and possible course of roll-outs.

In the same breath, the MoF Press Release also informs the public at large that the progress is underway to finalise the different facets of GST Design like the payment systems; the exemptions; the place of supply rules; the processes relating to dual control and return-filing etc. Obviously, some work has been done but they are not yet finished and need to be accelerated. Once they are finalised by the two key stake-holders - the Centre and the States, they might decide a date to make them public for consultations. Again, the process of consultation should be given a minimum time span of six months given the gigantic length and breadth of the country and also the different fiscal literacy-level of the taxpayers. Indian policy makers need to shed their cultural skin of consulting a few chambers of business in the national capital and rush through notifying the changes. These Committees and our politicians need to remember that all the business entities which are going to be impacted by this reform are not represented by a handful of business associations. Since the GST is likely to produce greater impact for smaller businesses like traders and dealers, the reform protagonists must reach out to them before finalising any of these key processes.

Ideally, the Finance Minister should go for nationwide roadshows, informing and educating smaller businesses and collecting their feedback for further refinement of the processes, laws and rules before the model laws are transported to the precincts of Parliament and State Assemblies. And such roadshows should be conducted for not less than a year. Such a period of one year can also be utilised by large businesses and IT Companies for designing the outer framework of their ERP software or other tools which would be required for online synergy with the GSTN functioning. If such a breathing time-frame is not given (India has in fact no history of 'really consulting' taxpayers before laws are made), the introduction of GST across the globe has a bad history of triggering political upheavals and India may not necessarily be an exception (I will discuss this aspect of GST in the coming weeks).

Let's now go to the Select Committee which appears to be doing a commendable work. Although it seems to be in a tearing hurry but it has managed to consult the 'people in the know of issues' and compiled a list of contentious points such as one per cent additional tax on inter-state trade of goods and not services, to be retained by the industrialised States; the guillotining of Dispute Resolution Body which was earlier proposed in the 115th Constitution Amendment Bill; Empowered Committee's fresh demand for 100% compensation for five years; some changes in the weightage of votes in the GST Council framework; exclusion of petroleum products and Electricity etc. The Select Committee has listened to the EC's Chairman K M Mani, the representatives of the Centre from the North Block and independent experts. The Committee is in haste and is keen to submit its report before the about-to-be advanced monsoon session of the Parliament. Once the Report is tabled on the floor of the Rajya Sabha, the Centre would probably go for some sort of compromise and rush through the passage of the Bill which is to be taken up by at least 15 of the State Assemblies before the next major step is taken in the direction of roll-out.

The hastiness of the NDA Government may come in for appreciation but only if it is restricted to motivate, nudge and push the wheel of developments on various fronts and the deadline is finally pushed by one more year so that the taxpayers are not aggrieved over the lack of time given to them for their own preparedness. When the Centre and the States have taken nine-long years to prepare themselves, in the interest of balance of justice and fairness, the GST taxpayers should be given at least 12 months to get GST-ready. Secondly, this time period should be utilised by the Government to stabilise the macro parameters of the economy as the GST by character is not only a regressive system but also necessarily causes inflationary pressure on the economy and no less cacophonous political protests by the 'have-nots'.

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