The GST logjam

Govt, Opposition must work together to break it

It is unfortunate that an initiative considered to be the biggest tax reform since 1991 has been allowed to be a victim of politics for the last many years. The blame for this should rest not just on the Congress but also on the Bharatiya Janata Party. If it is the Congress now that is flexing its political muscle to create new obstacles in the passage of the Constitution amendment bill to usher in the goods and services tax (GST) regime nationwide, the BJP did its best to stall the legislation when it was in the Opposition. The irony is that while both the major political parties in principle favour the GST, they have been quarrelling over some provisions of the new indirect taxes regime that should have been sorted out long ago - given enlightened statesmanship.

There are serious concerns over the proposal to fix a revenue-neutral GST rate in the Constitution amendment bill itself. The Congress has demanded that the bill should specify a tax rate of 18 per cent under the new regime. As Finance Minister Arun Jaitley has pointed out, this demand is preposterous - it will distort the basic structure of the tax law. Consider the legislative challenge of going back to Parliament all over again to seek its consent with a two-thirds majority if the revenue-neutral rate is to be modified - a possibility that cannot be ruled out. It will be more prudent to keep the rates in the regulations under the GST law so that any change needed for practical administrative reasons can be carried out without any long-drawn-out constitutional process. Instead of haggling over the inclusion of a tax rate in the GST bill, the government and the Congress would do well to agree on including petroleum products, at least, within the purview of the GST regime. These are used as inputs in a large range of products and services. Their inclusion would prevent the cascading effect of such taxes, creating efficiencies across the value chain.

In addition, the one per cent manufacturing levy will undoubtedly damage both the letter and spirit of a law that envisaged the tax to be levied at the point of consumption. It is the superiority of a destination-based tax architecture that gives the GST its advantage over the current system. The government has made an overture by exempting all inter-branch transfers among states, not amounting to a sale, from the proposed manufacturing levy. This certainly reduces the deleterious nature of the levy; but, ideally, such a tax has no place in the GST regime. Further, it could damage the government's 'Make in India' programme by making imports cheaper. Similarly, the need for setting up a dispute settlement authority deserves to be discussed and a political solution devised. There will be no harm if the concurrence of one-third of the states is made mandatory before any change in the rates or other GST provisions is to be made. Finally, the government and the Opposition must realise that where there is will, there is a way. And the GST is an idea where they must demonstrate their will in its support.