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Home >Politics >Policy >GST dealt a big blow to fiscal federalism and is a disappointment: Thomas Isaac

The goods and services tax has been a “big disappointment" replete with messy implementation and frequent changes, said Thomas Isaac, finance minister of Kerala. In an interview, he also said the tax has not benefitted the common man as prices of goods have not come down despite a reduction in taxes. Edited excerpts: 

Q) Has the one year of GST lived up to expectations?

The first one year of GST has been a big disappointment.

It was believed a vast majority of the country will benefit from GST. The incidence of tax, on average, has come down by nearly 40%. But prices haven’t gone down. It has become a windfall gain for the corporates in India. It has contributed to inflation. The poor and ordinary people have not benefitted from it. The central government has not been serious about the implementation of the anti-profiteering clause.

The small scale and unorganized sector in India, which was already suffering due to demonetization, suffered a big blow with the introduction of GST.

The GST implementation is totally messy. E-way bill was rolled out after a long time of waiting and then had to be shelved on the same day because of IT failure. Return forms are not ready or finalized even after one year. One does not know how annual return will take place.

There were concerns about states losing their rights and autonomy. It has been proved correct. It is a big blow to fiscal federalism. Against our expectations, rate split is 50:50, vertical imbalances between centre and states have increased and states have no autonomy for rate fixation for states. Integrated GST is totally under control of the centre.

Q) How has the delay in the finalization of tax return forms impacted revenues?

Even after one year, there is no way I can scrutinize my revenues. I don’t know from which sector how much revenue is coming. I cannot look at the input credit claimed by the traders. I just accept what they are saying.

This laxity is going to have a long-term impact over tax compliance in India.

Q) Do you think there is scope for further rate cuts?

I am totally against any new rate cuts. They are not allowing the tax system to settle. Bringing a change in every GST council meeting is not the solution.

All kinds of knee-jerk and ad-hoc decisions are being attempted that will destroy the architecture of GST. They won’t allow states to have any autonomy for fixing rates but want to have cesses and incentives for digital payments.

Q) Has e-way bill implementation improved compliance?

E-way bill has been made mandatory but how do you implement it without a check post. Even if check posts are abolished there should be a way for optical reading for number plates, automatic access to uploaded e-way bills and some thumb rule of checking if the commodities are same or not. No such verification process exists.

Commodities for which there is no great input credit at the origin, it pays to evade the tax. For instance, granite and marble, there is hardly any input credit to be claimed. Therefore, no bills are written. Indications are that compliance is not increasing over time.

Q) Has Kerala benefitted because it is a consuming state?

GST has affected our revenues. Kerala was expecting a 20% increase in revenues because it is a destination state as we import 90% of our commodities consumed. But the revenue increased by only 3-4% due to heavy leakages and the central government’s knee jerk reaction of slashing rates.

Even with compensation, I am facing a serious ways and means problem. My revenue deficit has widened. This has put my government under serious strain. Revenue buoyancy has not come in.

Q) When will the reverse charge mechanism be implemented?

I don’t think the government of India will bring it before elections. It is required to curb tax evasion but in the beginning it is going to be a little harsh and it will upset traders.

Q) There is a lot of debate about inclusion of petroleum under GST. Is is the right time for its inclusion?

I hope they don’t do it and let the tax settle down. If you want to bring down petrol prices, you should just reduce the excise duty. Prices are high because the BJP government increased excise duty by 200-300%. Bringing it under GST is just postponing the decision till election eve.

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