 "Meet the men behind GST")
It is India’s most radical tax reform. The goods & service tax (GST), the constitutional amendment bill for which is being tabled in Rajya Sabha today, will replace around 17 taxes, including central excise and service tax as well as state levies like value-added tax (VAT), stamp duty and entry tax. It has the potential to increase the country’s GDP growth by 1-2%.
India’s hugely complicated tax system, with multiple taxes and overlapping jurisdictions, hurts investors and households alike, contributing to the economy’s uncompetitiveness. Reforming this complex system has been a herculean task for an army of tax administrators, fiscal experts and state finance ministers.
Raja Jesudoss Chelliah was the father of tax reforms in India. He conceptualised the reform framework and was part of the committee on financial sector reforms, chaired by M Narasimham, whose reports ushered in dramatic changes in the tax system and, subsequently, in Centre-State financial relations. These paved the way for liberalisation.
Hardly anyone in the country has done as much for the cause of public finance research and reform. His contribution to the design and implementation of tax reforms is particularly notable. In his 1993 report laying a roadmap for reducing import duties, Chelliah suggested a study of central excise duties.
Read our full coverage on the GST Bill and its impact
The late Amaresh Bagchi, director, National Institute of Public Finance & Policy, was tasked with this study, including a possible GST. He initially thought India could develop a dual-GST model like Canada, but changed his view after academics helped him see this would make the Centre too strong. International experts also pointed out that a GST was too ambitious a reform for India because of a culture of non-compliance, bad tax administration, poor technology and a large unorganised sector.
Many of the concerns being raised today on the financial autonomy of states — their right and ability to levy taxes — were first raised by Bagchi. He felt states needed autonomy and should not be dependent on handouts from the Centre. He ultimately did not suggest a dual-GST for India, but only a reform of state taxes.
Parthasarathi Shome, who was adviser to then finance minister P Chidambaram, had good chemistry with Asim Dasgupta, chairman of the empowered committee of state finance ministers, which implemented VAT and will oversee GST. They had mutual respect for each other, and understood the technical aspects of VAT. He produced an outstanding white paper on GST in April 2008, which received the endorsement of states, Satya Poddar, partner, Ernst & Young, told Business Standard in 2010.
Shome's paper outlined a GST model which dovetailed neatly with the GST model recommended by a task force constituted by 13th Finance Commission Chairman Vijay Kelkar. Unfortunately, Shome’s paper was never made public. He quit in 2008, after being passed over for the post of Union revenue secretary. If he had been selected, he would have been the first fiscal policy expert in that position.
Kelkar’s paper was his second recommendation on the introduction of GST. The first was in a report on implementation of the Fiscal Responsibility & Budget Management Act, 2003. He constituted a task force that used Amaresh Bagchi’s paper to prepare a detailed report on how GST could be implemented. Kelkar felt his job was done and that he didn’t have to convince the empowered committee. He focused on producing a detailed white paper and put his weight behind it.
The task force was headed by Arvind Modi, an IRS officer from the direct tax group. He used the income-tax database of 34 lakh corporate tax returns and quantified a revenue-neutral GST rate of 12% (7% for states and 5% for Centre) that would replace taxes like VAT, central sales tax, entry tax, stamp duty, and electricity duty.
When Dasgupta saw those numbers, he was elated. He is believed to have said that if the numbers were valid, he would go to the Prime Minister and announce introduction of GST. This was a week before Manmohan Singh had a heart surgery and for some reason the meeting never took place. States felt the rates were too low and asked National Institute of Public Finance & Policy Director Govind Rao to validate them. He came up with estimates that were double or triple the proposed rate.
As the head of the empowered committee, Dasgupta’s job was to forge 35 states and Union into a consistent viewpoint, irrespective of their political considerations. The Centre was so happy with the implementation of VAT, that Chidambaram lost no time in announcing a GST, and requested the same committee that had implemented VAT to oversee GST. Dasgupta covered significant ground on GST thanks to his stature and a voice that is heard and acknowledged. He also enjoyed a good equation with the then Finance Minister Pranab Mukherjee; they had known each other since the 1970s.
Dasgupta was head of empowered panel from 2000, when it was constituted till 2011, when he quit following the defeat of the Left Front in the West Bengal assembly polls. He was succeeded by the then Bihar finance minister Sushil Kumar Modi. Modi resigned in 2013, and was succeeded by Abdul Rahim Rather, the then finance minister of Jammu Kashmir. In March 2015, former Kerala finance minster K M Mani replaced him, who was replaced by West Bengal finance minister Amit Mitra in February 2016.
Each of them played a key role in furthering the cause of GST, with several officials in the states and Centre. Several state commissioners played an active role in the sub-working groups in the panel.
The road to GST has not been without opposition. During the UPA-II regime, opposition from states was led by Madhya Pradesh and its Finance Minister, Raghavji. But many believe the man behind Raghavji is A P Shrivastava, principal secretary, commercial taxes, Madhya Pradesh. In May 2009, when the Kelkar report was given to states, Shrivastava began talking with with Sumit Bose, an Indian Revenue Service officer from the MP cadre, who was then the secretary, 13th Finance Commission.
“Shrivastava became active and formed a view that GST is a bad tax. He has had a significant impact on Raghavji in opposing GST,” a GST observer had told Business Standard in 2010. They kept asking what the benefit of GST would be for states. When the constitutional amendment Bill was tabled, MP said it would undermine the states’ fiscal autonomy.
Starting with Madhya Pradesh, all the states then ruled by the Bharatiya Janata Party had opposed GST: Gujarat, Chhattisgarh and Karnataka. They were led by Gujarat FM Saurabh Patel and Raghavji. They said GST was discriminatory, anti-poor and that producing states would be losers. ‘‘The opposition was more political than anything else, at least in case of Gujarat. Chhattisgarh and Madhya Pradesh may have genuine concerns,’’ said Pratik Jain, partner & executive director at audit and tax firm KPMG in 2010.
India’s hugely complicated tax system, with multiple taxes and overlapping jurisdictions, hurts investors and households alike, contributing to the economy’s uncompetitiveness. Reforming this complex system has been a herculean task for an army of tax administrators, fiscal experts and state finance ministers.
Raja Jesudoss Chelliah was the father of tax reforms in India. He conceptualised the reform framework and was part of the committee on financial sector reforms, chaired by M Narasimham, whose reports ushered in dramatic changes in the tax system and, subsequently, in Centre-State financial relations. These paved the way for liberalisation.
Hardly anyone in the country has done as much for the cause of public finance research and reform. His contribution to the design and implementation of tax reforms is particularly notable. In his 1993 report laying a roadmap for reducing import duties, Chelliah suggested a study of central excise duties.
Read our full coverage on the GST Bill and its impact
The late Amaresh Bagchi, director, National Institute of Public Finance & Policy, was tasked with this study, including a possible GST. He initially thought India could develop a dual-GST model like Canada, but changed his view after academics helped him see this would make the Centre too strong. International experts also pointed out that a GST was too ambitious a reform for India because of a culture of non-compliance, bad tax administration, poor technology and a large unorganised sector.
Many of the concerns being raised today on the financial autonomy of states — their right and ability to levy taxes — were first raised by Bagchi. He felt states needed autonomy and should not be dependent on handouts from the Centre. He ultimately did not suggest a dual-GST for India, but only a reform of state taxes.
| Chairman, Empowered Committee of State Finance Ministers 2000-2011: Asim Dasgupta, finance minister, West Bengal 2011-2013: Sushil Kumar Modi, finance minster, Bihar 2013-2015: Abdul Rahim Rather, finance minister, Jammu & Kashmir 2015-2016: K M Mani, finance minister, Kerala Feb 2016 onwards: Amit Mitra, finance minister, West Bengal |
Parthasarathi Shome, who was adviser to then finance minister P Chidambaram, had good chemistry with Asim Dasgupta, chairman of the empowered committee of state finance ministers, which implemented VAT and will oversee GST. They had mutual respect for each other, and understood the technical aspects of VAT. He produced an outstanding white paper on GST in April 2008, which received the endorsement of states, Satya Poddar, partner, Ernst & Young, told Business Standard in 2010.
Shome's paper outlined a GST model which dovetailed neatly with the GST model recommended by a task force constituted by 13th Finance Commission Chairman Vijay Kelkar. Unfortunately, Shome’s paper was never made public. He quit in 2008, after being passed over for the post of Union revenue secretary. If he had been selected, he would have been the first fiscal policy expert in that position.
Kelkar’s paper was his second recommendation on the introduction of GST. The first was in a report on implementation of the Fiscal Responsibility & Budget Management Act, 2003. He constituted a task force that used Amaresh Bagchi’s paper to prepare a detailed report on how GST could be implemented. Kelkar felt his job was done and that he didn’t have to convince the empowered committee. He focused on producing a detailed white paper and put his weight behind it.
The task force was headed by Arvind Modi, an IRS officer from the direct tax group. He used the income-tax database of 34 lakh corporate tax returns and quantified a revenue-neutral GST rate of 12% (7% for states and 5% for Centre) that would replace taxes like VAT, central sales tax, entry tax, stamp duty, and electricity duty.
When Dasgupta saw those numbers, he was elated. He is believed to have said that if the numbers were valid, he would go to the Prime Minister and announce introduction of GST. This was a week before Manmohan Singh had a heart surgery and for some reason the meeting never took place. States felt the rates were too low and asked National Institute of Public Finance & Policy Director Govind Rao to validate them. He came up with estimates that were double or triple the proposed rate.
As the head of the empowered committee, Dasgupta’s job was to forge 35 states and Union into a consistent viewpoint, irrespective of their political considerations. The Centre was so happy with the implementation of VAT, that Chidambaram lost no time in announcing a GST, and requested the same committee that had implemented VAT to oversee GST. Dasgupta covered significant ground on GST thanks to his stature and a voice that is heard and acknowledged. He also enjoyed a good equation with the then Finance Minister Pranab Mukherjee; they had known each other since the 1970s.
Dasgupta was head of empowered panel from 2000, when it was constituted till 2011, when he quit following the defeat of the Left Front in the West Bengal assembly polls. He was succeeded by the then Bihar finance minister Sushil Kumar Modi. Modi resigned in 2013, and was succeeded by Abdul Rahim Rather, the then finance minister of Jammu Kashmir. In March 2015, former Kerala finance minster K M Mani replaced him, who was replaced by West Bengal finance minister Amit Mitra in February 2016.
Each of them played a key role in furthering the cause of GST, with several officials in the states and Centre. Several state commissioners played an active role in the sub-working groups in the panel.
The road to GST has not been without opposition. During the UPA-II regime, opposition from states was led by Madhya Pradesh and its Finance Minister, Raghavji. But many believe the man behind Raghavji is A P Shrivastava, principal secretary, commercial taxes, Madhya Pradesh. In May 2009, when the Kelkar report was given to states, Shrivastava began talking with with Sumit Bose, an Indian Revenue Service officer from the MP cadre, who was then the secretary, 13th Finance Commission.
“Shrivastava became active and formed a view that GST is a bad tax. He has had a significant impact on Raghavji in opposing GST,” a GST observer had told Business Standard in 2010. They kept asking what the benefit of GST would be for states. When the constitutional amendment Bill was tabled, MP said it would undermine the states’ fiscal autonomy.
Starting with Madhya Pradesh, all the states then ruled by the Bharatiya Janata Party had opposed GST: Gujarat, Chhattisgarh and Karnataka. They were led by Gujarat FM Saurabh Patel and Raghavji. They said GST was discriminatory, anti-poor and that producing states would be losers. ‘‘The opposition was more political than anything else, at least in case of Gujarat. Chhattisgarh and Madhya Pradesh may have genuine concerns,’’ said Pratik Jain, partner & executive director at audit and tax firm KPMG in 2010.