GST Bill logjam – The story of betrayal by Congress

The GST bill, Goods and services tax bill. The bill has been expertly exploited by the Congress to derail the parliamentary proceeding. This issue has been an old time favourite in media and surprisingly has failed to generate much concern in public.

For most of us, “GST is a bill that was a disputed by BJP when introduced by UPA  in 2011 and now is being  opposed by Congress therefore it is dangling in Rajya Sabha“.

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Sounds like regular political spectacle. It is just the usual stuff that we watch on TV over dinner and forget the next day. Honestly, I was doing the same and never paid much attention until the Congress party started using GST bill as a vindication to disrupt the parliament.

I started scratching the surface and then realised how important it is for all of us to recognise the issue and politics behind it. Whilst I do not claim to be an expert on GST and the agenda of politicians for further delaying the bill, I would like to share my findings and imprint it left on me.

Without going into too much technical detail, let’s comprehend what is GST and why it is much needed reform?

Goods and Services Tax is a exactly how it reads. GST is a ‘summed-up’ tax on all goods and services. A term ‘summed-up’ is very important in previous sentence as the GST will replace most state and central taxes like Service tax, Central excise duty, VAT, Sales tax, Luxury tax, State and central surcharges and many more.

In other words, GST is simple, transparent and hopefully out of reach of corrupt politicians and bureaucrats. In addition to that it will help to purge the complexity, bureaucracy and confusing demarcations in current tax system.  Most importantly GST will abolish cascading of tax.  Cascading of tax denotes ‘tax on tax’.

France was the first country to introduce GST in 1954. Since then, most developed and many developing countries have implemented GST in one or the other form.  Some suggest that the GST will increase India’s GDP by 2% and will reduce cost of input by up to 20%.

Reduced input cost will translate into reduced cost of production and ultimately less burden on consumer’s pocket. Unlike Australia, the GST model in India will have 3 elements, CGST (Central GST, collected by the Central Govt.), SGST (State GST, collected by the State Govt.) and IGST (Integrated GST, collected by the Central Govt. and shared with State)

Let’s start with looking at major events that took place in order to implement GST in India.

  • The requisite of GST was first identified by the NDA government in year 2000. An Empowered Committee led by Mr Asim Dasgupta was  formed to design the GST model and the IT backend requirements.
  • Year 2006/7’s budget speech UPA’s finance minister Mr Chidambaram announced that GST will be implemented from 1st April 2010 (No one could see the irony then, the 1st April) .
  • In March 2011 the 115th constitutional amendment bill was introduced in Lok Sabha. It was handballed to the Standing Committee on finance who presented the bill to Lok Sabha in Aug-2013.
  • Dec-2014, the 122nd constitutional amendment bill was passed in Lok Sabha which is dangling in ambiguity as the bill was pending in Rajya Sabha.

Many of us (as led to believe by mainstream media) are under impression that the GST bill was a creation of the UPA government. And when UPA introduced the bill in 2011, BJP lead states opposed the bill.

The point hardly finds mention in public discourse is that the UPA government only followed lead of Mr Vajpayee’s government. Additionally, the statement often used by mainstream media that “BJP lead states opposed the bill” sounds like the bill was opposed under an austere political agenda and BJP never wanted GST to be instigated.

modi-hand-759The fact of the matter is that it was BJP who took an initiative on GST while previous Congress governments were busy reaching new high in scams. BJPs never protested the GST bill, but they spoke against certain clauses and discrepancies in the bill.

Secondly, it was not only BJP lead states who opposed the 2011 bill. According to the report submitted by Standing Committee on 7th August 2013 in the parliament, most states raised some concerns about one or more clauses in the bill.  Below text is copied from Standing committee report point 82, page 50.

Several States like Bihar, Gujarat, Haryana, Jharkhand, Maharashtra, Rajasthan and Tamil Nadu feel that since Central Government has retained the power to tax ‗tobacco and tobacco products

Several States namely Andhra Pradesh, Assam, Karnataka, Jharkhand, Chhattisgarh, Uttar Pradesh and West Bengal are objecting to omitting Entry 55. Under Entry 55, tax is levied by the local bodies on the advertisements through hoardings etc.

―States of Andhra Pradesh, Assam, Kerala and West Bengal wanted that ―taxes on Betting and Gambling should be kept outside GST, while the States namely Himachal Pradesh, Jharkhand, Karnataka, Rajasthan and Uttarakhand feel that local bodies do not have capability to levy entertainment and amusement tax and, therefore, power should be given to the States to levy these taxes and distribute them to the local bodies.

Politically savvy readers will notice that in 2011 Haryana (Hooda), Assam (Gogoi),  Maharashtra (Chauhan), Rajasthan (Gehlot), Tamilnadu (Jayalalitha), Kerala (Chandy), WB (Banerjee) and many other states who opposed GST were not ruled by BJP

What were the issues that BJP did not agree with in the bill?

  1. GST is a tax that is collected from purchaser or in other words when goods or services are purchased by end user. This may result in revenue loss for the states who are more prolific in manufacturing goods for other states than consuming themselves. Gujarat and Maharashtra are leading producing states and would have been the prime sufferers if there was no provision to compensate productive states. In the bill presented by UPA in 2011 there was no clarity on GST compensation package or mechanism. Gujarat government estimated revenue loss of Rs 9000 Crore.
  2. BJP proposed to allow additional 1% state levy for the states who will suffer revenue loss due to GST. This was evidently denied by the UPA finance minister Mr Chidambaram
  3. In UPA’s model the IGST was to be collected by central government and there was no clarity on sharing IGST revenue with states.
  4. GST is a substantial reform and requires sophisticated and robust IT infrastructure. UPA government failed to laydown plans for reform in  IT infrastructure to address challenges posed by overhaul in GST rules
  5. BJP demanded to initially exclude petroleum products, alcoholic beverages and tobacco products from scope of GST bill. These products are major revenue source for most states and keeping them out of GST will give some breathing space to states. These products can be enclosed at later stage should the GST council finds it suitable.
  6. The proposed UPA bill advised to create a GST Dispute Resolution Authority who may have power to override the supremacy of parliament and state legislatures.

Most of the above demands were functional. As it happens in any mature democracy, two parties come to the table, debate the issue and come up with resolution. You win some, you lose some.

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The Finance Minister  then Mr Chidambaram out rightly   put his foot down to accept any of the above recommendations. As a matter of fact, he was willing to scrap the whole GST bill rather than coming to negotiation table.

This was a blatant demonstration of the authoritarian mindset of Congress. We all know that neither Mr Manmohan Singh nor Mr Chidambaram had any authority to take independent decisions in UPA government. This decision was a driven by philosophy  of ascendancy.

So what changed between March-2011 and December-2014 that most states came committed with the bill and also it was passed in Lok Sabha?

The NDA government addressed most of the issues mentioned before and made some amendments to the bill. Speaking of which, I would like to state an example of GSTN  (GST-Network) to give readers an idea of inelegance of Congress party.

GSTN is a not for profit company who is partially owned by Government of India, GSTN is accountable for designing and implementing IT infrastructure to facilitate enactment of GST. GSTN was incorporated on March 28, 2013. Mr Chidambaram promised in 2006/7 budget speech that the UPA Government will implement GST from 1st April 2010 and it took  9 years and another Government to take a rudimentary step like this.

When most states (including Congress ruled states) are on board with the bill than implementing the bill should not be an issue. Any normal person would think so. So where is the blockage?

The 44 MPs from UPA tried all they could to notoriously disrupt the GST bill in Lok Sabha, Luckily it was passed in Lok Sabha. But Rajya Sabha is different story, the Congress  aligned themselves with every available obstructionist  to make sure that the bill never passes in Rajya Sabha.

The Prime Minister, Shri Narendra Modi meeting the former Prime Minister, Dr. Manmohan Singh and the Congress President, Smt. Sonia Gandhi, in New Delhi on November 27, 2015.

When your politics is driven by disruption tactics then  all you need is one excuse. The headless chickens found three. The ‘infamous three demands’ are as per below.

  1. Additional 1% tax proposed in GST should be removed: NDA bill included provision to have additional 1% state levy on interstate trade to compensate revenue loss for manufacturing states. Congress party wants this to be removed. Again, if this provision is to be removed, how do you compensate states who will lose their tax revenue? Why Congress should answer this hey?
  2. Independent dispute resolution mechanism: Amount of power UPA decided to give this proposed body was undemocratic. NDA proposed to create ‘GST council’ who will operate within limit of their autonomous powers. The Congress not unsurprisingly is finding it hard to apprehend the concept of moderated power. Hence this demand from them.
  3. Constitutional cap at 18% on GST rate: Out of the blue moon emerges this  new demand from UPA. , No one talked about the cap until now. Even the UPA bill didn’t have any reference to Cap. Where did this come from? The list of excuses to obstruct GST is unending. Any minor change in the Cap limit in future will entice modification to legislation. Food for thought, look at all the ‘tax legislations’  proposed by Congress in past 60 years and check how many of them had Cap on it? On the contrary – BJP has given the authority to decide cap to proposed GST Council.

The Congress party is all aware that their opposition to GST is not in national interest.  Then what could possibly be the rationale behind their opposition to GST?

To me a possible explanation is that Congress intends to politically exploit the temporary inflation that GST brings with it.  It is true that countries who introduced GST tend to experience heightened level of  inflation rate for the first couple of years.

As we have seen in Australia when the GST was first introduced by Howard government in 2000, the inflation rates increased by 2-3% and then in couple of years it receded to normal. The benefit realisation of GST starts 2-3 years after it is implemented.

It is very tempting for a political party in opposition like Congress to agree for GST bill one or two years prior to the all-important Lok Sabha elections so that the negativity associated with rise in inflation could be politically exploited to hound the ruling party.

Therefore, my estimation is that Congress party will keep finding excuses to derail the process until sometimes in 2017. So the temporary inflation will be peaking  in 2019, right in time to exploit before the Lok Sabha elections.

Both BJP and Congress want GST bill that’s for sure. Only difference is Congress wants to use GST bill as an armament against NDA government in next election and alongside wants to implement some of their vague ideas. I tried to address their views and the lucidity that drives their agenda. I will leave it to readers do pick who’s agenda is in favour of Indian economy.

By Devang Jasani (Melbourne)

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