Incremental progress on GST

Incremental progress on GST

The introduction of the 115th Constitution amendment Bill in Parliament marks another step in realizing the dream of a goods and services tax (GST) in the country. Now, after the many acrimonious debates on the subject in the empowered committee of state finance ministers, deliberations on this important subject can move to a calmer environment, a parliamentary standing committee.

That, however, sums up the positive features of this step. There are disquieting features in the Bill, ones that can create problems for the country later on. It was a foregone conclusion that states would not give up some of their powers of taxation. These involve taxing commodities such as crude oil, high-speed diesel, petrol, natural gas, aviation turbine fuel and alcoholic liquor for human consumption. Such taxes have a serious inflationary impact and represent a major distortion in the economy. Instead of excluding them formally from GST, they could simply have been left out. What the Bill does is to formally include them as a clause (clause 12A) to Article 366 of the Constitution. This article deals with definitions used in various sections of the Constitution.

The danger is that having once included them in the Constitutional framework, undoing this is going to prove very difficult at a later date. At the moment, states earn substantial revenue from such taxes. Suppose 10 years later they see the wisdom of including these commodities in the GST, it will prove difficult to undo what has been proposed in the Bill.

The Bill introduces another article, Article 279A, that paves the way for the creation of the GST council, a policy formulating/recommending body in the GST framework. But to placate the states, the Union government has handed a veto to the states: every decision of the GST council will be with the consensus of all the members of the council present at its meetings. In a fractious polity, this is a good recipe for deadlocks over trifling matters, leave alone more substantive issues.

These are major “concessions", if concession is an appropriate word for diluting one of the most important policy initiatives of recent years.

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