The ongoing 10-day visit of a large delegation of Indian officials, including state finance ministers, to Canada, underscored the fact that the rollout of the Goods and Services Tax (GST) in India still has a long way to go.
Central and state governments are nowhere close to a consensus, going by responses from finance ministers of various states. A delegation comprising members of the empowered committee of state finance ministers, along with state and central finance ministry officials, was here for discussions with Canadian officials and business groups.
Speaking to Business Standard at an event organised by the Indo-Canada Chamber of Commerce, Madhya Pradesh Finance Minister Raghavji said: “We are still stuck where we were. In fact, differences are growing.” He singled out state autonomy as the biggest issue, describing states as wary of ceding revenue and authority to the Centre.”
Raghavji said other contentious issues included the administrative mechanism for GST. “The Centre will collect tax and state governments will also collect tax. Who decides if taxes will rise or fall?” He said there was also conflict regarding the proposed Disputes Settlement Authority and about exemptions.
He dismissed the prospects for curbing tax evasion under the GST system, noting the problem had not abated in European countries that had adopted GST. “More complicated the system, more the chances of evasion and this GST system is more complicated,” Raghavji said.
However, the minister, who is from the Bharatiya Janata Party (BJP), said the disagreements over GST were not along political lines.
Kiran Choudhry, minister for excise and taxation of Congress-ruled Haryana, agreed there were no political divisions within the empowered committee. But in contrast to Raghavji, she felt there were few remaining hurdles and “roll-out should happen any time now”.
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For her state, Choudhry said the main concern was Central Sales Tax (CST) compensation, as Haryana was one of the states with the largest CST compensation due from the Centre, at Rs 3,000 crore. “We are demanding that CST compensation should be given to us till the time GST is not rolled out, as was promised when this entire exercise began. Unfortunately, that has not happened,” Choudhry said.
While she believed GST would make the economy and taxation “more vibrant”, she said the gains might not be spread equally among all states. “For example,” she said, “Haryana is a producers’ state. In the long run, states which are not doing anything will tend to benefit much more than we will.”
“Regarding compensation, regarding rates with a narrow band, and if there is any calamity or floods, states should have flexibility. So, there are certain issues on which states are unanimous but the central government has not incorporated these in the Constitutional Amendment Bill,” Modi said.
He reiterated this was a state-Centre issue, rather than a political divide. “The BJP is also in favour of GST. But in favour of GST is one thing; the devil lies in the detail. So, when you go into the details, there is more concern from state governments,” he said.
But Modi sounded optimistic about the central government’s readiness to compromise, as the passage of the Constitutional Amendment Bill would require a two-thirds majority in Parliament and approval from 50 per cent of state legislatures. “I think Chidambaram is very flexible, but how much time he will get, I can’t say,” Modi said, referring to Union Finance Minister P Chidambaram.
Parliament is currently awaiting a report on the Constitutional Amendment Bill for the GST from its Standing Committee on Finance
The Indian delegation is visiting Toronto, Ottawa and Vancouver to study GST implementation, compliance and fraud tracking mechanisms in a fellow federal system.
Rana Sarkar, president and chief executive officer of the Canada-India Business Council, said Canada could offer a good model for India, which needed to overhaul its tax regime. “The current system of revenue collection in India, a legacy of the post-Independence period, is not working, and there are enormous gaps between where India needs to be and where it is right now.”
This is the second visit by the empowered committee to study Canada’s GST system. A delegation had visited the country for the same purpose in 2006.
The delegation members were unanimous that the current trip did not fly in the face of austerity measures back home, even if they took away different lessons from this tour. “We are going away much more knowledgeable,” said Choudhry. Added Raghavji: “The delegation’s study strengthens views that this proposed GST cannot work in India.”
According to Modi: “This has nothing to do with austerity. The delegation has come to study the system; it has not come for sightseeing.” He might not have checked the delegation’s schedule in Toronto carefully. Included in the official programme was a day trip to nearby Niagara Falls.