The choice of Bihar’s Finance Minister Sushil Modi to chair the Empowered Group of State Ministers on the Goods and Services Tax (GST) has been praised as an astute move by the Union government. Mr Modi’s assent should also be viewed as a mature move by the main national opposition party, the Bharatiya Janata Party, which is a party of government in many states and hopes to return in that capacity to New Delhi. Mr Modi has the opportunity and challenge to take forward the good work of his predecessor, West Bengal’s former finance minister Asim Dasgupta, in getting all state governments to agree to the principle of introducing GST via a dual rate – one for the Centre (CGST) and one for the states (SGST) – to allay fears that states would lose their taxing powers. Mr Dasgupta also managed to garner consensus for a proposed combined rate of 12 to 20 per cent in the first year with a convergence towards a single rate of 16 per cent by the third year (alcohol, tobacco and petroleum products will be exempted), though this has not been formally announced. But Mr Modi is well aware that these are baby steps and the committee took more than five years to travel just this distance. As Mr Modi’s interview with Business Standard suggests, there is so much left to be done that only the naïve or hyper-optimistic will consider the implementation deadline of April 1, 2011 – a year over the original deadline – achievable.
Mr Modi’s broad challenge will be bringing closer conformity among India’s 28 states with the new tax. Given that states have been deviating from the six-year-old value-added tax or VAT over the past year, ensuring alignment for GST, a more complex tax, will certainly be a tougher task. Some states, for instance, are now keen to have coal excluded from the purview of GST, others want an alternative mechanism for Octroi, the highly remunerative local entry tax that will be subsumed within the new unified tax. States continue to be worried about compensation for potential revenue losses once central sales tax, of which they receive a share, is scrapped. States like Tamil Nadu and Madhya Pradesh are rightly exercised about the huge IT backup systems needed to facilitate the GST.
Then there are legislative issues to consider. The United Progressive Alliance (UPA) managed to introduce a Constitutional Amendment Bill to implement GST – required because it alters the states’ taxing powers – only this March. It is now under scrutiny of a standing committee which has yet to start discussions with members of the state panel. Some commentators have suggested that the amount of discretion the Bill allows at the local levels – district and regional councils, panchayats and inter-state levies on goods outside the GST net – will add to the complexity and confusion. Hopefully, the UPA government will be able to get the Bill passed sooner rather than later. More than 80 Bills are already pending in Parliament, more than 75 per cent of two-year vintage. Yet GST, with its promise of transparency, is something industry and global investors are keen on. If Mr Modi is able to carry his party along with him he would have achieved a lot.
