Dissent or Disruption – The Congress Party’s Position on GST : Arun Jaitley

On Aug 2, 2015

The Report of the Select Committee on the Goods and Services Tax has been submitted to the Rajya Sabha. The Constitution Amendment Bill has already been approved by the Lok Sabha. The Select Committee has recommended a five year compensation to the States which suffer any revenue loss on account of introduction of the GST.

History

The proposal for introduction of GST was first mooted by Shri P. Chidambaram in his Budget Speech for the year 2006-07. After detailed deliberations and negotiations in the Empowered Committee of State Finance Ministers, the 115thConstitution amendment Bill, 2011 was introduced by Shri Pranab Mukherjee, the then Finance Minister. It was referred to the Parliamentary Standing Committee which submitted its report in August, 2013. The Bill, however, lapsed with dissolution of the Fifteenth Lok Sabha.

Thereafter, the NDA Government again held negotiations with the Empowered Committee and after an overwhelming consensus, introduced a bill incorporating certain changes which had also been recommended by the Parliamentary Standing Committee. The near unanimous recommendations of the Empowered Committee, which were entirely supported by Congress ruled States, enabled the preparation of the eventual Bill to amend the Constitution which was introduced by me as 122nd Constitutional Amendment Bill.

Rationale

The rationale of the Bill is to simplify the complex indirect tax structure in the country. The present system involves multiplicity of taxes, absence of uniform rates of taxation, and the cascading effect of “Tax on Tax”. It is also an impediment in the seamless transfer of goods and services across the country. The GST simplifies the indirect tax regime. It seeks to reduce cost of production, inflation, multiplicity of taxes and uneven taxation rates. Significantly, it also creates an eco system for seamless movement of goods and services across the country and cuts down transaction costs. It will broaden the tax base, result in better tax compliance and eventually increase the country’s GDP. The GST resulting in better compliance will improve the revenue of the States and certainly do justice to a large number of lesser developed States in the country. It is for this reason that most State Governments and regional parties are supporters of the GST.

The Congress dissent

The three members of the Congress Party have circulated a note of dissent to what is otherwise a consensus report of the Select Committee. I wish to comment on each of the points raised by the Congress Party in its note of dissent.

(1)The Congress members have proposed that a rate of GST be fixed in the Constitution as not exceeding 18%. This suggestion was not in the Bill proposed by Shri Pranab Mukherjee. When Shri P. Chidambaram negotiated with the Empowered Committee, this suggestion did not exist even then. The rates of taxation are usually not fixed in the Constitution, more so when we live in a dynamic world. The rates have to be recommended by the GST Council depending on various factors such as economic conditions, revenue buoyancies etc. and incorporated in the GST laws. There may be some rationale in the rate recommended by the Congress Party. However, this decision has to be taken by the GST Council and cannot be a part of the Constitution itself. The rates will vary depending on a host of factors.

(2)The Congress has further proposed that the expression “supply” should not apply to goods and services supplied by one unit of a firm to another unit of the same unit of the firm. There was no such proposal in either Mr. Pranab Mukherjee’s bill nor in the proposal approved by Mr. Chidambaram. In any case, GST charged on supply of goods and services would be VATable and not have any cascading effect.

(3)The Congress proposes that the share of local bodies in the revenue buoyancy should be a part of the proposed constitution amendment. This goes contrary to the 73rd Amendment to the Constitution which provided for setting up State Finance Commissions which have the responsibility of making such recommendations. In any case, neither Mr. Pranab Mukherjee nor Mr. Chidambaram had accepted any such proposal.

(4)The Congress has further proposed that a State or a Union Territory with or without a legislature having a population not exceeding twenty lakhs should be given a special status. This was never Mr. Pranab Mukherjee’s or Mr. Chidambaram’s proposal. In any case, the provision for special category approval is based on a host of factors. Congress wants Goa to be a special category state under GST, but Goa has the highest per capita income in the country.

(5)The Congress has further proposed that electricity, tobacco products and alcohol for human consumption should be given the same treatment as petroleum in the Amendment bill. This was not a proposal mooted by any of the Congress Finance Ministers. A consensus with the States would be effectively broken if this suggestion of the Congress is accepted. Petroleum has been included in the GST but the GST would be levied and charged on the product only when the GST Council so decides.

(6) Congress has further proposed that the voting representation of the States in the GST Council, which has been kept at two-third should be increased to three-fourth. This would effectively reduce the centre’s voting power from one-third to one-fourth. This is contrary to the decision that Mr. Chidambaram specifically took on 30.04.2013. The majority required in the GST Council for taking a decision is three-fourth. In fact, the Congress proposal would mean that if all the States get together and decide that the Centre should have a lower GST rate, they could deplete revenues of the centre almost completely. India is a Union of States. Is it the Congress proposal that the Union should cease to economically survive? Is it their proposal that the Centre should have no say in the system of national taxation? The Congress appears to have made this proposal without adequate application of mind.

(7)The Congress has further proposed that any dispute with regard to GST should be adjudicated by a GST Tribunal chaired by a person who has been a Judge of the Supreme Court or Chief Justice of a High Court. The power of deciding the modalities of adjudication and settlement of disputes in the present bill is with GST Council. Political issues have to be settled politically and not by judges. The original proposal for setting up a Dispute Redressal Tribunal was rejected by the Standing Committee and the Empowered Committee of the State Finance Ministers. The UPA Government accepted the suggestion of the Standing Committee. It is only an afterthought that the Congress has chosen to revive the proposal.

(8)The Congress Party has asked for deletion of a two years transient provision which provided for an additional tax of 1% to be credited to the exporting State. This provision has been added in order to allay the fear of the manufacturing States which felt that they would initially lose some revenue. This is based on a unanimous decision of the Empowered Committee to which all Congress ruled States have agreed.

It was the Congress led UPA Government that proposed the GST in the 2006-07 Budget. The Constitution amendment was piloted by the UPA. The changes suggested by the Empowered Committee and the Standing Committee were accepted by the UPA Government. The present Government has not made any significant modifications to the same except to bring a consensus between manufacturing and the consuming States. The State Governments belonging to the Congress Party have consistently supported the proposal. Is it only out of an obstructionist attitude that the Congress Party has adopted a negative role? Since Parliament is not functioning and there is no way to clarify these points before the same, I am constrained to place the above facts in public domain.

The Congress Party and its leader may be upset with the Government for political reasons. They may be upset with the electorate for the 2014 verdict. The Congress Party should accept and seriously introspect after having ruled the country for the longest period of time, that negativism hurts the country. Should its obstructionist tendencies inflict an economic injury on the country?