GST can’t be delayed beyond September 2017: Arun Jaitley

New Delhi: Finance minister Arun Jaitley on Friday made clear that rollout of the goods and services tax (GST) was not optional.

“The Constitution does not permit delay in GST implementation. The government notified GST on September 16 and the constitutional amendment itself says the current indirect tax system can continue for one year, after which the GST has to come,” Jaitley said

“So, you have a constitutional compulsion to have a goods and services tax in place before September 16 (2017), otherwise the country doesn’t run, and the tax is absolutely essential,” he added.

Addressing the Hindustan Times Leadership Summit in New Delhi, Jaitley also defended the government’s move to demonetize high-denomination currencies.

Jaitley said demonetization, together with GST, will help grow the country’s gross domestic product (GDP).

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“Demonetization plus GST means bigger economy, and higher and better GDP,” Jaitley said. He said both the moves will lead to a cleaner tax system in the country.

Jaitley said once GST is in place, it will help capture each financial transaction and there will be less tax evasion. Further, GST will preclude the cascading effects of indirect taxation. “Two taken together will be a game changer,” he said.

Serving an ultimatum to states who are opposing GST’s rollout in a time-bound manner, he said those states that are opposing reform will be on the watch list of investors. “Investors will be wary of them,” Jaitley said. Earlier this week, Kerala and West Bengal had red-flagged GST, arguing for a rethink on the timetable—which schedules a 1 April rollout—in the backdrop of the economic dislocation caused by demonetization of high-value banknotes, Mint reported on 2 December.

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Jaitley also signalled a clean-up in the funding of political parties. “The current move will create a situation where political funding will become far more transparent. At the end of the day, donors will say, ‘Where do I bring this money from? The only donation I can give is legitimate cheque donation’”, he added.

Jaitley detailed four benefits of demonetization.

First, more money in banks because of the surge in low-cost deposits; the cost of lending should decrease.

Second, money not deposited with the Reserve Bank of India but in circulation before the ban can be used for constructive work.

Third, the exemplary tax on those with unaccounted-for cash deposited after demonetization will add to the government’s coffers.

Fourth, it will expand India’s tax base.

Asked when the cash crunch triggered by demonetization would ebb, the finance minister said that it should ease by 30 December, the last date by which people with demonetized notes should deposit them in banks.

“You won’t have the same level of paper currency which existed on the 8th of November. One of the advantages of this exercise is that you will reduce the quantum of paper currency and take the country more towards a digital currency or for further digitization,” he said.

The FM conceded that in the short run there would be disruption but that it would ease out in the long term.

“If you switch over from a particular way of life... there is disruption. But I do not see the disruption lasting long, maybe a quarter or so. But if you look at the next 12 or 15 months, the impact will be beneficial,” Jaitley said, adding that the move will eventually boost GDP.

India’s economy grew 7.3% in the September quarter, faster than 7.1% in the June quarter. Growth is expected to slow in the next two quarters.