Photo: Priyanka Parashar/Mint
Photo: Priyanka Parashar/Mint

NDA’s do-or-die moment on GST

This session of Parliament is the last chance for the BJP-led National Democratic Alliance (NDA) to get the GST through

If all goes to plan, the Rajya Sabha, which otherwise has been holding out for nearly a year, is likely to give its stamp of approval to the constitutional amendment bill this week, enabling the roll-out of the goods and services tax (GST).

First, the regional parties broke opposition ranks and now the Congress—though it continues to keep everyone guessing—seems to be reluctantly coming around. The bellicose exchanges which had become the norm on the past few occasions when hopes of a compromise were revived are missing this time—especially between the Congress and its bête noire, the Bharatiya Janata Party (BJP).

As they say, all the stars are in a favourable constellation and it looks like India will formally begin the process of initiating its biggest tax reform since Independence; it will turn India into one economic entity. The anticipated impact of this on the efficiency of Indian business is a compelling argument, even if nothing else strikes us. Further, it overturns the existing principles of taxation—shifting it to the point of consumption as opposed to imposing it at the manufacturing stage. And it looks like it will be on consensus, which is the only way it should happen, given the scale of the reform.

And frankly, this session of Parliament is the last chance for the BJP-led National Democratic Alliance (NDA) to get the GST through. By the time the winter session rolls around, most political parties will be at war, readying for key state elections, and at that time to expect a compromise is wishful thinking. And after that, the cycle of the next general election would take over and the GST will no longer be a priority in this tenure of the NDA—it is therefore a do-or-die moment for them.

While indeed this—passage of the constitutional amendment bill—is a necessary condition for putting in place a GST, it is not sufficient. Actually, it is just the beginning. Once the Rajya Sabha gives its nod and the Lok Sabha ratifies any changes that may have been made to the version they passed, it will be notified by the President. Thereafter, at least half of the states have to approve the bill for the constitutional amendment to become operational. Once this is clinched, the stage is set for the setting up of the GST council—a body consisting of states and the centre—to guide the roll-out of the tax across the country.

Well, if this is time-consuming, the real negotiations are about to begin. Already skirmishes have begun as states, concerned about revenue losses, aim for a higher rate, while the finance minister and technocrats lean towards a lower rate to mitigate the inflationary impact. The eventual rate will ride this trade-off. Since this will be decided by the GST council, consensus is likely.

Simultaneously, companies and consultants have been warning us about the complexity of implementing GST. The model GST law (which is premised on the setting up of the GST council), recently put in the public domain for discussion, is being dismissed as a rough draft; most call it at best a WIP (work in progress). Writing in the Business Standard on 7 July, Satya Poddar and Venkatesh Narayan of Ernst and Young argued that it compromises the efficiency and simplicity of a GST and is at best an amalgamation of the most toxic sections from the legacy laws of the centre and states. If both these experts are to be believed, then it is back to the drawing board.

More worrying is the repurposing of the tax administration. For nearly seven decades, they have been too used to a style of working in silos. Yes, they have transformed in step with the constant reworking of the tax structure in the country, especially the transition to a value-added tax (VAT) regime. But what is being expected of them in the next few months/years is unprecedented—not just the tax administration of the centre, but also those of 29 states and seven Union territories have to be streamlined to work together.

Clearly, there is much more to the GST than just the passage of the enabling provision—the constitutional amendment bill. Unfortunately, the political discourse and the commentary in the media suggest that it is all about overcoming the political hurdle in the Rajya Sabha.

Even though senior government officials argue otherwise, it is unlikely that the GST will be rolled out by 1 April as promised. A delay is not a bad thing. The GST is a great idea whose time has come and care should be taken not to be tripped up in the detail—this will be the real test of the NDA legacy.

Anil Padmanabhan is executive editor of Mint and writes every week on the intersection of politics and economics.

His Twitter handle is @capitalcalculus

Comments are welcome at capitalcalculus@livemint.com

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