At the heart of what could trip the actual roll-out is the argument over the maximum rate at which the tax can be imposed. The Congress had been arguing in favour of bringing in a cap on GST right into the Constitution — thereby, making it really difficult to change the cap in future if a government in power desired to do it. However, the party has now agreed to drop the demand of a cap in the Constitution but has insisted that the cap should come in through legislation made by Parliament, and that such legislation should not be tabled in Parliament as a “money bill”.
It is odd to have a cap on tax rates as a feature of the Constitution — what the tax rate should be is indeed a political power granted by the people who put members of the Lok Sabha into office. The government of any given day holds office so long as it enjoys the confidence of the Lok Sabha. Draft legislation that impose tax at specified rates — for example, the Finance Act, which is legislation underlying the annual Union Budget varying tax rates — are typically “money bills”. Article 110 of the Indian Constitution sets out a list of six subjects and provides that any proposed law that seeks to legislate only in these six areas would be a “money bill”. The very first subject in Article 110 is that of imposing, abolishing, altering, reducing or regulating any tax.
Money bills can only be introduced in the Lok Sabha. The people of India directly vote the Lok Sabha into office to grant it fiscal powers — essentially, the power to impose tax and the power to dip into revenues of the State. Once the Lok Sabha passes a money bill, it is sent to the Rajya Sabha which may only make recommendations on the proposed law. If the Rajya Sabha does not return the bill to the Lok Sabha in two weeks, the law is deemed to have been passed by Parliament in the form in which the Lok Sabha passed it. The Lok Sabha may also reject all the recommendations received from the Rajya Sabha.
While a money bill does give the government of the day leeway to convince only the directly-elected Lok Sabha to pass law, if a money bill fails in the Lok Sabha, it would only mean that the executive government does not enjoy the confidence of the Lok Sabha and must therefore vacate office. Therefore, when a party in government is doubtful of numbers in the Lok Sabha, it would have no incentive to push for classification of any draft law as a “money bill”. If the party in power has comfortable numbers in the Lok Sabha but no majority in the Rajya Sabha, it would try to label every bill that may face rejection in the Rajya Sabha as a “money bill”.
The law giving a legal framework to Aadhaar was classified as a “money bill” by the Speaker of the Lok Sabha, and the Rajya Sabha was bypassed. A writ petition filed by a Congress MP against this approach is pending in the Supreme Court. The court will decide whether the constitutional provision stating that the Speaker’s decision on whether a bill is a money bill is “final” would mean that the Speaker’s decision can never be challenged even if the decision is evidently wrong and contrary to facts.
Now, with two of its three demands being met — a tweak in the framework for dispute resolution between the governments, and the removal of discretion of states to vary the GST by 1 per cent — the Congress has agreed that the cap on GST need not be included in the Constitution. However, the demand for a face-saving exit — that future legislation on the tax should not be treated as a “money bill” — is absurd since such draft law would squarely constitute a money bill under Article 110 of the Constitution. When the abuse of treating a non-money bill as a money bill is what has been challenged, it would be odd for a money bill to be treated as not constituting a money bill.
The government would need to be politically coerced into bringing in other subjects into any future GST legislation that deals with the cap so that it is the draft law that is not treated as a “money bill” thereby bypassing the Rajya Sabha. There can be many a slip between the cup and the lip. At least one half of states have to approve of the constitutional amendment on GST; the state finance ministers in the “GST Council” (the club of state and the central finance ministries that would decide on the rates) could get tied up in knots over GST rates; and worse, a work-to-rule approach by some states in the actual physical implementation could inflict further enormous delays.
Come April 1, 2017, we could well discover that the two parties have only just kicked the can down the road merely because the BJP cannot afford to be seen as ineffective and the Congress cannot afford to be seen as destructive. If that were to turn out to be the case, we would have just witnessed a classic chapter in the horrible Indian policy of approaching all important economic reform by stealth.
The author is a lawyer. He can be reached at som@somasekhar.in