New Delhi/Bengaluru: There is a question mark over the rollout of the goods and services tax (GST) from 1 April after West Bengal finance minister Amit Mitra said on Wednesday the timing is not right for its implementation, given the impact on state finances because of the partial demonetisation.
Coming against the backdrop of vehement opposition by many states to demonetisation, this may be seen as a kind of political payback.
Pointing out that the government’s decision to demonetise high-value banknotes has already impacted state finances, Mitra said India’s federal structure may not be prepared for a ‘double whammy’ as implementation of GST could further hurt state finances.
“We must do GST but do it at a time when it is feasible, successful, when states’ revenues do not decline significantly, Centre is able to compensate the states and federal polity of India is preserved. I do not see that at this time,” Mitra, who is also chairman of the empowered committee of state finance ministers, said in an interview to television channel NDTV.
“We expected a huge destabilization of the fiscal architecture of the country with GST. State taxes will fall significantly, and that is why we sought that the centre should compensate us for five years,” Mitra said. “We all supported GST under the premise that this would be the only destabilization factor. We did not know that there will be a much bigger destabilization in the form of demonetisation that will be let loose on the country.”
Mitra pointed out that states are reporting a huge fall in revenues as demonetisation hits tax collections from sectors like hotels, transportation and small manufacturers.
He said he will take up this issue with other state finance ministers.
Mitra’s comments come ahead of the crucial GST council meeting on 2 and 3 December that is scheduled to debate the draft GST laws and the bill on compensation.
The council’s nod to these bills will be crucial for the centre to table them in the winter session of Parliament.
“There is deep concern that GST will not come to the Parliament in a democratic manner. If it comes, it will come as a money bill... In every sphere, democratic spirit is being violated by the Union government,” Mitra said.
Mitra also found support in Kerala finance minister Thomas Isaac.
When asked whether he agrees with the argument that after demonetisation it may not be the right time for implementation of GST, Isaac said, “Yes. It has now opened up a whole lot of issues. The state’s revenues are suffering. I don’t want to be seen as opposing GST but there is a lot of merit in what he said. We will take a common stand through consideration.”
Prime Minister Narendra Modi cancelled the legal tender of the old Rs500 and Rs1,000 notes with effect from 9 November.
The government’s decision has been strongly opposed by many opposition parties, including Mitra’s Trinamool Congress, the Congress party and the Communist parties.