 "Administratively, we are ready for GST rollout from April 1, 2016: Shaktikanta Das")
The Rajya Sabha could not discuss the Constitution amendment Bill in the monsoon session. It is anybody's guess whether a special session would be called to get it cleared or it would come up in the winter session. Keeping politics aside, Revenue Secretary Shaktikanta Das tells Dilasha Seth and Indivjal Dhasmana that administratively, GST could be rolled out from April 1, 2016. It all now hinges on how quickly the Bill is passed. Edited excerpts:
Since the Rajya Sabha did not discuss the Constitution amendment Bill on goods and services tax (GST), is there a Plan B for rolling out the new indirect tax system from the date other than scheduled April 1, 2016?
Administratively, we have taken all the action to implement GST from April 1, 2016. If the Bill gets passed quickly, we will be able to roll out from the scheduled deadline. We are not looking at any Plan B as of now. Both the Centre and state governments are working in close cooperation, under the aegis of the empowered committee of state finance ministers.
If any consultation is required, it will be done. But there appears a broad consensus on GST.
There are apprehensions that up to one per cent tax on interstate trade of goods would make imports cheaper. Do you concur?
I will not agree to the idea that one per cent tax will make a big difference to imports. Even now there is two per cent central sales tax (CST). One per cent tax is lower than the existing two per cent.
But the existing CST would be subsumed with GST. Isn't one per cent tax like CST - will still remain and yet distort GST?
One per cent additional tax was a compromise worked out to address concerns of the manufacturing states. It is a not a perfect GST, but the best should not be the enemy of the good. It is important that the one per cent tax is primarily for two years, not forever. Manufacturing states' concern was that there will be loss of revenue. As GST is implemented, the consuming states will benefit from the first year itself. The manufacturing states might initially face losses in the first two years as CST goes, but will eventually make up. Manufacturing states are also large consumers. The average purchasing power in the manufacturing states is more than that of the consuming states. There is every expectation that the manufacturing states will make good their revenue losses in the second, third or even the fourth year. This additional tax should, by and large, stay for two years. All their accounts are audited. The moment we come to know that the revenue losses are not being incurred; there will be no justification to continue. The way things are expected to play out, will make one per cent tax unnecessary in the third year.
GST is structured as a destination-based tax. Will it not go against the grain of Make in India. Why will any state go for manufacturing if it is not to get tax from it?
A destination-based tax means you get input tax credit, credit for whatever tax you have already paid. The advantage of GST is that you are getting India as a one single unified market. You are getting tax credit for input tax you have paid at every stage. Say you have a manufacturing plant in Noida and you buy from Madhya Pradesh. Today, whatever tax you pay - whether it is CST or the local tax - you pay there. You are not getting the benefit of Cenvat on that or VAT credit either. Cenvat and VAT are two different revenue streams. You pay CST to MP but when you come to Noida, you don't get credit for the two taxes you have paid to MP. Under GST, you will get input tax credits. There will be no tax on tax.
Therefore, the cost of production will go down as you get input tax credit across the value chain. Under GST, India becomes a common unified market and manufacturers will get input tax credit across the value chain. The cost of production comes down and will make your product that much more competitive vis-à-vis manufacturing products under a different tax regime. Therefore, GST will strongly facilitate and assist the process of Make in India.
Has the finance ministry taken into account the impact of compensation to the states on the Centre's roadmap for fiscal consolidation exercise?
It (compensation) should not impact the fiscal consolidation roadmap. Sometimes the losses in revenue are overstated. When VAT was introduced, the compensation the Centre paid to all the states for three years was Rs 33,000 crore. Under GST, one does not expect the abnormal revenue losses that are feared. There will be revenue loss, and it should be doable for the government to accommodate the additional expenditure within the fiscal roadmap.
Is the finance ministry looking at a common policy for all arbitrations being filed against the government?
We had a meeting recently to discuss arbitration cases coming up and how best to proceed on them. Each case will depend on the facts of the matter. Our stated policy is that the tax matter cannot be a subject matter of arbitration. That is the stated position of the government. In each case, the facts and circumstances need to be examined.
Has the ministry decided on the arbitration notice by Cairn?
The inter-ministerial group will decide. The group will take a view and make recommendations to the government. The IMG meeting will be convened shortly.
Is the finance ministry considering the recommendations by a special investigative team (SIT) to set up a central know your customer (KYC) registry?
Yes, the central KYC registry is being set up. It will house KYC info with all banks, financial institutions and entities. The details are being worked out.
Since the Rajya Sabha did not discuss the Constitution amendment Bill on goods and services tax (GST), is there a Plan B for rolling out the new indirect tax system from the date other than scheduled April 1, 2016?
Administratively, we have taken all the action to implement GST from April 1, 2016. If the Bill gets passed quickly, we will be able to roll out from the scheduled deadline. We are not looking at any Plan B as of now. Both the Centre and state governments are working in close cooperation, under the aegis of the empowered committee of state finance ministers.
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Will there be a stakeholder consultation once the draft GST laws are prepared?
If any consultation is required, it will be done. But there appears a broad consensus on GST.
There are apprehensions that up to one per cent tax on interstate trade of goods would make imports cheaper. Do you concur?
I will not agree to the idea that one per cent tax will make a big difference to imports. Even now there is two per cent central sales tax (CST). One per cent tax is lower than the existing two per cent.
But the existing CST would be subsumed with GST. Isn't one per cent tax like CST - will still remain and yet distort GST?
One per cent additional tax was a compromise worked out to address concerns of the manufacturing states. It is a not a perfect GST, but the best should not be the enemy of the good. It is important that the one per cent tax is primarily for two years, not forever. Manufacturing states' concern was that there will be loss of revenue. As GST is implemented, the consuming states will benefit from the first year itself. The manufacturing states might initially face losses in the first two years as CST goes, but will eventually make up. Manufacturing states are also large consumers. The average purchasing power in the manufacturing states is more than that of the consuming states. There is every expectation that the manufacturing states will make good their revenue losses in the second, third or even the fourth year. This additional tax should, by and large, stay for two years. All their accounts are audited. The moment we come to know that the revenue losses are not being incurred; there will be no justification to continue. The way things are expected to play out, will make one per cent tax unnecessary in the third year.
GST is structured as a destination-based tax. Will it not go against the grain of Make in India. Why will any state go for manufacturing if it is not to get tax from it?
A destination-based tax means you get input tax credit, credit for whatever tax you have already paid. The advantage of GST is that you are getting India as a one single unified market. You are getting tax credit for input tax you have paid at every stage. Say you have a manufacturing plant in Noida and you buy from Madhya Pradesh. Today, whatever tax you pay - whether it is CST or the local tax - you pay there. You are not getting the benefit of Cenvat on that or VAT credit either. Cenvat and VAT are two different revenue streams. You pay CST to MP but when you come to Noida, you don't get credit for the two taxes you have paid to MP. Under GST, you will get input tax credits. There will be no tax on tax.
Therefore, the cost of production will go down as you get input tax credit across the value chain. Under GST, India becomes a common unified market and manufacturers will get input tax credit across the value chain. The cost of production comes down and will make your product that much more competitive vis-à-vis manufacturing products under a different tax regime. Therefore, GST will strongly facilitate and assist the process of Make in India.
Has the finance ministry taken into account the impact of compensation to the states on the Centre's roadmap for fiscal consolidation exercise?
It (compensation) should not impact the fiscal consolidation roadmap. Sometimes the losses in revenue are overstated. When VAT was introduced, the compensation the Centre paid to all the states for three years was Rs 33,000 crore. Under GST, one does not expect the abnormal revenue losses that are feared. There will be revenue loss, and it should be doable for the government to accommodate the additional expenditure within the fiscal roadmap.
Is the finance ministry looking at a common policy for all arbitrations being filed against the government?
We had a meeting recently to discuss arbitration cases coming up and how best to proceed on them. Each case will depend on the facts of the matter. Our stated policy is that the tax matter cannot be a subject matter of arbitration. That is the stated position of the government. In each case, the facts and circumstances need to be examined.
Has the ministry decided on the arbitration notice by Cairn?
The inter-ministerial group will decide. The group will take a view and make recommendations to the government. The IMG meeting will be convened shortly.
Is the finance ministry considering the recommendations by a special investigative team (SIT) to set up a central know your customer (KYC) registry?
Yes, the central KYC registry is being set up. It will house KYC info with all banks, financial institutions and entities. The details are being worked out.