Why Telangana's KCR is going back on his GST promise

KCR's immediate worry is the new tax regime pushing up costs of TRS government's promised flagship programmes.

 |  4-minute read |   09-08-2017
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At first gungho about the introduction of a uniform GST for the country and bending backwards to adopt requisite legislation by the state, Telangana chief minister K Chandrasekhar Rao is now circumspect about its implementation and impact. He has veered to the view that it is an experiment and pointed out that countries have withdrawn it following issues in implementation.

The turnaround is not surprising considering elections to the 119 seat legislative assembly are less than two years away. KCR's immediate worry is about GST pushing up the costs of the TRS government's flagship programmes for increased irrigation, dependable drinking water supply, and habitable housing for the needy in keeping with his 2014 poll promises. If the programmes try to alter the impression about his ability to keep his promises, the poll prospects of the TRS may be in jeopardy.

Flush with funds at the time of formation of the fledgling state, Telangana under the TRS is determined to demonstrate that its development narrative is of total inclusiveness. This is in spite of the fact that resources are inadequate to ensure the specific welfare and other measures cannot cover all in the distinct targeted sections of society. KCR is adopting the please-all strategy in order to win over the majority in almost all sections, suggesting that it is only by electing TRS for a second term that they can ensure the full flow of benefits to all.

Telangana's information technology and industries minister KT Rama Rao told the GST Council on August 5 that tax should not be levied on public utility projects. Then the Council reduced the GST from 18 to 12 per cent. A disenchanted KCR threatened in a not so veiled manner that the state will pursue the issue in court. His contention is that it is not fair to levy GST, which was introduced on July 1, on projects taken up earlier. His ire over the adverse impact of GST on state finances, though belated, is justifiable. The objections are on the symptomatic aspects of the new tax regime.

If 12 per cent GST is levied, not only Telangana but all other states will also incur losses. Unless the Union government extends tax relief to the states, the budgetary allocations for the welfare programmes will need drastic restructuring. KCR's plea is that a new state needs hand-holding in implementing ambitious programmes meant for public welfare.


This is why he is making a strong pitch for waiver of an estimated additional annual tax burden of Rs 19,000 crore if the GST rates are not reduced. The state has been paying a VAT of five per cent so far on the irrigation, drinking water, housing and other projects. Now, it is hiked to 12 per cent under the GST, imposing a huge financial burden on the state.

His argument is that this is patently unfair. There are larger and more vexatious issues like states, especially those spending on development and infrastructural projects, being taxed more. In effect, the state governments have to pay a heavier price for doing its duty in providing responsible governance through public welfare measures.

The irony is with more Union government representatives on the GST Council the states have to sound shrill if their autonomy in taxation is not to be eclipsed in an unjust and unfair manner. Viewed from that perspective, KCR's war cry of a frontal assault on fiscal federalism is valid. Political detractors, though, see an ulterior motive.

"BJP does not think that there will be a loss to the state exchequer if GST is levied on ongoing projects. The losses being projected are purely fictitious calculations," says state BJP spokesman Krishna Sagar Rao. "Is KCR speaking for EPC contractors? Business enterprises know how to protect their interests. It's not the job of a CM to lobby for lowering their taxes."

The TRS chief is looking farther in order to drift away from the BJP as poll calculations come into play. KCR is signalling, after supporting the NDA nominees in the presidential and vice-presidential polls, which his party will no longer bend but be belligerent to retain and possibly enlarge its political space beside reiterating its identity to come up trumps in 2019. What enables him and the TRS to gain, at this juncture, is that political Opposition is divided and in disarray.

(Courtesy of Mail Today.)

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Amarnath K Menon Amarnath K Menon @amarnathkmenon

The writer is Hyderabad-based and senior editor, India Today.

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