GST Council must be in place before the law is rolled out
Following the presidential assent to the 122nd Constitutional Amendment Bill (CAB) enabling the introduction of Goods & Service Tax (GST), India is all set for the actual roll out of GST on April 1, 2017. Trade/ trade associations are however seeking an extension by six months for IT preparedness.
There are so many game changers in the meanwhile, starting from change of the financial year to rolling in the Railway Budget into the Union Budget. Advancement of the General Budget itself in January 2017 is being explored. Let us start at the very beginning of how the new approach looks like.
The Union Cabinet is likely to take up the constitution of the GST Council in its next meeting to be held on September 19. This constitutional body, which is to be headed by the Union finance minister and comprising representative state finance minister will decide the rate/s at which the GST will be levied by the Centre and states and collected or to be paid by the consumers across the country and between the states during interstate movements.
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| Union finance minister Arun Jaitley. (PTI) |
While the Opposition wants the rate cap at 18 per cent, the states are apprehensive that it may not be the revenue neutral for them and hence a higher rate 20-22 per cent would be feasible for them to protect their revenue. The council is scheduled to meet in New Delhi on Friday, September,22.
The council, likely to be in place before September end, will have to brood over the GST rate and a clutch of other issues as important as GST itself such as the exemptions, thresholds of exemptions, the bands providing for rates below and above the standard rate to pacify the poor, mollify the rich and embrace gently the middle income taxpayers who matter most.
The most contentions of all, is the creation of an appropriate dispute resolution mechanism. It has to be wangled out with some carrots and sticks, and very well too; otherwise the GST engine will get derailed with its bogies.
There are going to be disputes:
(a) Between the Centre and the states,
(b) Between the states and,
(c) Between the GST Council and the Centre or states - the stickiest of the three.
Whether the GST Council is planning to have a quasi-judicial set-up or a full judicial set-up is the question. A quasi-judicial mechanism won't do considering the federal nature of the tax matters involved.
It is possible that the GST Council may succeed with a consensual approach between the Centre and the states and between the states, if the Centre is not going to play the role of a big brother.
In the proposed scenario, there is a constitutional guarantee of concurrent taxing justification for both for the Centre and states. In fact, the parliamentary system in Indian polity had since engendered a consensual approach to national politics and GST Council is after all an off shoot of such a political process and structure of team work and team management for the purposes of important fiscal function of tax collection, expenditure and redistribution of wealth in a modern egalitarian society.
There will be either too little or no meaning in a fourth tax rate being considered by some states for the category of goods and services with an abatement of certain percentage in value say 60-70 per cent such as transport, constructions, works contract or composite contract having a major element of materials/goods compared to services.
There is need for providing abatement even under the new regime of GST. Already some of the goods such as petroleum suffer a levy in the hands of Centre and states in the form of excise duty/VAT which is a parallel taxation which has been consented to be kept outside GST in the new dispensation.
The GST Council will have to mainly consider if it would be politically feasible to tax the goods and services at 18 per cent as the revenue neutral rate (RNR), with of course, a three-tier rate structure as standard, below and above standard rates.
Before the council is set up, the empowered committee of state finance ministers, have to thrash out many of these basic issues and set the tone of the complete tax reform to resonate well with the Centre and states.
The rate issue is a highly polemical one. One expert says 27 per cent and another 18 per cent. There are yet others, the states, wanting the rate to be 20-22 per cent, not willing to go into the statistical computations.
The chief statistician of the country, TCA Anant of ISO had confirmed the GDP figures and affirmed the present method of computation of the same based on 2013-14 series as fairly accurate on the sidelines of an informal meeting in Chennai recently.
Then, the forecast of an eight per cent growth rate based on the above GDP figures must be quite right along the lines.
Several states have expressed their concern over the calculation of the RNR for the GST. A government committee headed by the CEA, Arvind Suramanian had confirmed 18 per cent as the ideal rate, since at that rate the governments will make just about the same revenue as before even under the new tax regime.
Furthermore, they have found other calculations made earlier by others have underestimated indirect tax collection of nearly Rs 7 lakh crores. The CEA and the ISO chief's positive information of the RNR and the GDP rates respectively, should embolden the government to press ahead with the RNR of 18 per cent, which is still higher going by the international GST/VAT implementing countries around the world.
The GST Council should convince its constituent members on board to rest assured of the revenue neutrality of the proposed rate of 18 per cent. The government should also not leave up to the GST Council all the time to make the GST work. The government should set sail soon to catch the second wind to implement the GST quickly.