GST gets more tricky PDF Print E-mail
Monday, 05 December 2016 04:53
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Both Centre & states have to agree by next Sept


Even before the November 8 demonetisation, it appeared the GST talks were floundering on the issue of dual control of income tax assesses—which is why, on November 4 itself, finance minister Arun Jaitley called for an informal November 19 meeting of state finance ministers, to try and settle matters prior to the formal GST Council meeting. Given how in the past, all contentious issues had been resolved in the Council—as finance minister Arun Jaitley had said, no decision has ever been put to vote—it was widely hoped this would also be resolved. Many issues got resolved primarily because of the Centre’s willingness to go along, never mind that this resulted in a higher tax structure than is desirable. Indeed, even the retrograde anti-profiteering clause appears to have been brought in at the instance of the states—imagine the inspector-raj which will be unleashed when GST inspectors have the power to check if lower GST rates have been passed on to consumers. A very critical role, especially in the early phases, was that of West Bengal chief minister Mamata Banerjee—had this not been available, in fact, it is not clear if GST would have got even so far. But, with demonetisation, all of this appears to have been jeopardised—it didn’t help that the prime minister’s barbs on how those who were opposing him were supporters of black money seemed directly aimed at Banerjee. Not surprisingly, then, that West Bengal finance minister Amit Mitra has said that since demonetisation has destabilised the economy, the last thing it needs is the kind of shock GST will give; and, with demonetisation likely to hit production, the revenues of states have taken a huge hit.

It is possible that West Bengal’s opposition can be countered by the Centre’s new-found allies like Bihar chief minister Nitish Kumar, but forging a consensus on dual control was never going to be easy with the states adamant on not ceding control to the centre. Theoretically, the government has the option to go ahead and introduce the GST Bills as money Bills and skirt the Opposition in the Rajya Sabha, but this is of little use since, for GST to become an Act, it needs to be ratified by a minimum number of state assemblies as well— in any case, given the host of other issues that require perfect central and state coordination over the entire implementation phase, sticking to the unanimity principle is the Centre’s best bet, even if this means GST cannot be introduced from April 1. Indeed, the extra time should be used to try and fix the flaws introduced such as the higher tax rates and the clause on profiteering. Given the GST’s potential in eliminating tax evasion since the entire process of a good being manufactured/sold or a service being rendered would be digitally tracked, not meeting the April 1 deadline has to be a big disappointment. But that was always the risk the centre took when it embarked on its demonetisation drive. The fact that the constitutional amendment Act has a last-date of September 16, 2017 after which no VAT can be levied puts pressure on the states to come to an agreement on dual control, but this applies equally to the centre since it also loses its powers to levy excise and service taxes.



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