GST rollout: Why PM Modi has to do more than just hope
Dated 15th October, 2015
Prime Minister Narendra Modi on October 6 expressed the hope that goods and services tax (GST), arguably the single most important tax reform the economy of this country needs will be rolled out in 2016. The PM spoke in Bangalore in the presence of business leaders and the visiting German Chancellor Angela Merkel at the India-German Summit 2015, to which, however, Karnataka Chief Minister Siddaramaiah had not been invited. As Modi was speaking, it was clear that cooperative federalism was taking a beating, setting back GST.
GST, conceived as a countrywide, uniform value-added tax for both goods and services, has to be accomplished only through a grand bargain involving the Centre and the states. This remains as true today as it did in 2001 when GST was first mooted in the report of the Vijay Kelkar Committee. The PM's idea of holding summits with visiting world leaders in states and not just in the national Capital is supposed to give expression to the concept of Team India comprising PM and all the CMs. The reason for excluding of Karnataka CM from the Bangalore event seems to be suggesting a unilateralist approach, thereby complicating the GST process.
On October 8, media reports said that online shopping companies such as Amazon India and Flipkart could soon face tax complications with Karnataka government proposing a 1 per cent levy on payments by buyers to sellers on e-commerce sites, a move that could encourage other states to follow suit. The proposed levy will be in the form of a value-added tax deducted at source. IT industry lobby group National Association of Software and Services Companies (Nasscom) has been asked to respond to this tax proposal.
It is interesting that Nasscom was the industry sponsor of the India-Germany meeting in Bangalore and the e-commerce tax proposal was discussed at a closed-door meeting called by the principal secretary in the Karnataka finance department on October 5, just a day before the event.
Former PM Manmohan Singh is on record saying that Modi as Gujarat CM was personally responsible for derailing GST due to the arrest of his colleague Amit Shah for murder in July 2010. Modi on his part shouldn't be surprised if Opposition parties and their governments in states behave in the same way. PM's talk of cooperative federalism has few buyers among non-NDA state governments. Even non-Congress Opposition ruled states -- Mamata Banerjee's West Bengal, Naveen Patnaik's Odisha, Arvind Kejriwal's Delhi or Manik Sarkar's Tripura -- have their own reasons to doubt PM's sincerity.
Some are complaining about the “raw deal” to their respective states under the Finance Commission award which Modi Government showcased as the biggest example of its role in promoting cooperative federalism. Others are complaining about their diminished voice in national development planning in the wake of abolition of Planning Commission and coming into being of Niti Ayog. With every passing day, the ability of the Modi government to strike the grand bargain for GST is diminishing.
Union finance ministry officials say preparations for GST roll-out in 2016 is in full swing. Central Board of Excise & Customs (CBEC) member V S Krishnan on October 8 told an industry meeting that even if the April 1, 2016 date is missed, GST can be rolled out before April 1, 2017. The GST law has already been drafted. It would be given to the Empowered Committee of State Finance Ministers for their inputs. Thereafter, it would be put in the public domain for comments. In addition, the draft “place of supply” rules will also be made public for comments. A committee is already working on the GST rate structure. It is expected to submit its report shortly. The Empowered Committee of State Finance Ministers is also working with the National Institute of Public Finance and Policy (NIPFP) on the so-called revenue-neutral rate based on a fresh set of data. The rate should not exceed 20 per cent.
Where is the stumbling block then? The key to progress is in getting the Constitutional Amendment Bill passed in Rajya Sabha and then getting at least half of the state legislatures endorse it. First, the Modi government needs to muster two-third support in favour of the Bill in Rajya Sabha, where NDA at the last count had only 63 members of its own. The government's numbers in Lok Sabha alone is no help. A Joint Sitting of both Houses of Parliament is not an option for amending the Constitution. Bolstering NDA's own strength to a two-third majority in Rajya Sabha is just a remote possibility in the near future. Alternatively, the PM could back up his GST hopes with a deliberate strategy. He could personally get involved in negotiating the grand bargain based on cooperative federalism as was originally envisaged in the GST process. If GST has progressed this far, it is only because such a path was taken. The mechanism of the Empowered Committee under the successive chairmanship of a finance minister of a state ruled by a party in opposition to the ruling dispensation at the Centre was part of that deliberate strategy.
Sadly, the Modi government missed the opportunity to press with GST immediately on assuming office along with its first budget. Instead, it spent huge political capital on the totally unnecessary and eventually fruitless pursuit of amending the land law of 2013. Attempts at convening a Special Session of Parliament soon after the monsoon session to pass GST were stillborn because negotiations at the level of ministers of parliamentary affairs and finance with leaders of Opposition groups in Parliament were headed nowhere. Isn't it time that the PM himself took up negotiations for a grand bargain, to start with Sonia Gandhi ?
(This article is published in ABPlive.com on 15th Oct, 2015)