As it stands now, the goods and services tax (GST) is more of a dream. Implementation deadlines are observed more in the breach and the states and the Union government can only agree to disagree on the subject. India’s ambitious attempt at creating a unified market—with a uniform system of indirect taxation—is yet to take off from the drawing board.
This may change. As reported in Mint, an expert panel has issued a report that looks at design issues in GST and tries to minimize the points of difference between the states and the Union government.
Friction between the states and the Union government centres on a couple of points. For one, states are worried about loss of tax revenue once GST is implemented. The compensation mechanism was designed to take care of this concern. As with much else, this has been mired in fighting over details and the schedule of payments. At the moment, the Centre is not handing out any payments as there has been no forward motion on implementing GST. Another sticking point is the list of items to be exempted from GST (alcohol and petroleum products—two money spinning commodities for states). These differences have been couched in various terms—erosion of states’ autonomy on taxation, federalism and the like.
Will the expert committee’s recommendations make any difference? They may. For one, GST today is more a political quibble than any fundamental design issue. One way to get out of the logjam is to allow states to join GST at their pace and in the meantime roll out the system. To be sure, there will be complications—as the Mint report pointed out, the system may get more complex in the interregnum when companies have to figure taxation issues between GST-compliant and non-GST states. The key to overcome this bottleneck is to have a critical threshold of states that implement GST quickly. Once this happens—especially if many implementing states are contiguous and important ones are in such a list—those holding out will join sooner or later.
Ideally, there should have been as few exclusions from GST as was possible and its implementation uniform. But in a polity of continental dimensions and diversity, this is hoping for too much. The key to success lies in quick implementation, followed by ironing out of as many complexities as possible.
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