Until a fortnight ago, there were no doubts about the government’s ability to meet its target of rolling out the goods and services tax (GST) from April 2011. The broad framework of the proposed GST regime had many flaws, but what gave satisfaction to public finance experts was the fact that at last a basic and workable structure was in place. There were too many exemptions and more than one rate for goods, but the three-year transition period held out the hope that at the end of it, the country would see a single GST rate of 16 per cent at the Centre and the states. This was way above the 12 per cent rate recommended by the 13th Finance Commission, but the big relief was that the Centre had managed a broad consensus among most states on GST and it was even ready to introduce a Constitution amendment Bill in Parliament during the ongoing monsoon session.
That sense of relief has dissipated rather prematurely after last Wednesday’s meeting of the Empowered Committee of State Finance Ministers on GST. There are now grave doubts about the Centre’s ability to adhere to the target of rolling out of the GST from April next year. Three issues have contributed to this dramatic change in outlook. One, the proposed Constitution amendment Bill has vested the Union finance minister with a veto power as a member of the GST Council of finance ministers. Two, the proposal to create a GST Disputes Authority under the provisions of the Constitution amendment Bill has met with opposition from many states. Three, Finance Minister Pranab Mukherjee’s suggestion to include petroleum products within the GST ambit has underlined the need for a fresh discussion paper on the new tax structure.
It is reasonable to argue that a GST Disputes Authority should be created through a Constitution amendment Bill, without which it cannot have jurisdiction over both the Centre and the states. The states’ argument that the Authority’s creation could be mandated under separate GST legislations to be passed by the Centre and the states, therefore, does not hold much water. Similarly, the inclusion of petroleum products under the GST may be a desirable goal, but its implementation at this stage is not advisable. Any such proposal will necessarily mean further delay with a new discussion paper and the April 2011 deadline for the new taxation regime will surely be missed. The most contentious of all the proposals is the veto power for the Union finance minister in the GST Council. If indeed all decisions of the Council will have to be approved with a two-thirds majority, there is no reason why the Centre should retain a veto power. The idea of a veto power is intrinsically inimical to and inconsistent with the quasi-federal structure that binds the country together. Tinkering with that structure is neither beneficial for anyone nor desirable. The Centre should note that the opposition to the Union finance minister’s veto power at the GST Council has come not only from the Opposition-ruled states, but also from some Congress-ruled ones. The least the Centre should now do is to withdraw the veto power for the Union finance minister in the Council and thereby uphold the federal principles that define Centre-state financial relations in India.