Understanding the GST Bill Impasse
By Deepak Parvatiyar
August 17, 2015 (Published in elections.in)
On the completion of the first year of the Narendra Modi government at the Centre, the Union Finance Minister Arun Jaitley was upbeat about creating history – “We are in the process of creating history by bringing about the most important indirect tax reform - the GST (Goods and Services Tax)”, he had told media persons on May 22.
However, the government’s plans of creating history went awry because of the logjam in the monsoon session of Parliament over ‘Lalitgate’ and ‘Vyapam’ scams. (refer to http://www.elections.in/blog/was-bjp-a-lenient-opposition-as-compared-to-congress/).
The delay in the implementation of GST now threatens to derail the reform process in no uncertain terms. The Government had set the April 1, 2016 deadline to roll out the GST regime.
Little surprise, therefore, that once the monsoon session of Parliament ended in a virtual washout on August 13 with the government failing to get the GST bill, the Cabinet Committee on Parliamentary Affairs decided not to prorogue the session as yet and the House was adjourned sine die. This means a special session of Parliament can be convened at a short notice to get the GST bill approved by the Rajya Sabha.
On May 6 this year, the Lok Sabha, where the ruling Bharatiya Janata Party-led National Democratic Alliance enjoys majority, had already passed the GST bill, officially named as the Constitution (One Hundred and Twenty-Second Amendment) Bill 2014. (The Bill was introduced in the Lok Sabha on December 19, 2014 by Finance Minister Arun Jaitley after an earlier bill on GST — the Constitution (115thAmendment) Bill, 2011 introduced by the then Congress-led United Progressive Alliance government in Parliament to enable the levy of GST in 2011, lapsed with the dissolution of the 15th Lok Sabha). However, it is yet to be passed in the Rajya Sabha where the government does not have the majority.
Before we discuss the political aspect of the GST bill, let’s dwell on the significance of GST. The new tax would subsume most indirect taxes under a single taxation regime including various Central indirect taxes such as Central Excise Duty, Service Tax, Countervailing Duty, as well as State value added tax (VAT), luxury tax, octroi and entry tax. This would lead to broadening the tax base and increase in tax compliance, which could boost the economy by an estimated Rs. 2 lakh crore annually and enrich the state government’s coffers by Rs. 20,000 crore every year.
The GST is expected to reduce economic distortions caused by inter-state variations in taxes by including most indirect taxes under a single taxation regime. This could be achieved by addressing the bottlenecks of the Value Added Tax (VAT) regime, which is in existence since 1986. (VAT was introduced for central excise duty in 1986 (first as MODVAT and then as CENVAT) to end the earlier “tax on tax” regime where the tax on the input was subject to taxation again at the output level on each intermediate goods in the manufacturing process).
Since VAT regulations and rates generally varied across states and different sectors, the need for GST arose to ensure uniform supply of goods and services across the country so that no additional taxes were required to be paid across different states as prevalent today. The Congress government first authored the GST concept in 2006.
Yet, GST, too, had some inherent problems such as division of taxation powers between the central government and states. At present, the States cannot impose service tax while the Centre can't levy tax on goods beyond factory gate. A mutually agreeable formula for such a division between the Centre and the State had to be thrashed out. Not surprisingly, therefore, the Finance ministry missed three of its deadlines to come out with an acceptable framework.
This brings us to the political aspect of the GST and explains why despite being passed in the Lok Sabha on May 6, 2015, the GST Bill was referred to a Select Committee of Rajya Sabha on May 14, 2015. This also explains the dissent notes from the Congress, the All India Anna Dravida Munnetra Kazhagham and Left parties on the report of the Rajya Sabha Select Committee that was tabled in Parliament in July this year.
The GST Bill can only be implemented by a constitutional amendment that means it is required to be passed by each House with at least two-thirds votes. Besides, there is no provision for a joint sitting of both the Houses in case of disagreement between the two Houses over the Constitutional Amendment Bill. There is no other way to pass any constitutional amendment bill. This implies that to get the bill passed in the Rajya Sabha, the government requires the support of at least 163 members. However, the BJP has only 48 members as against the Congress’s 68 and the Opposition parties enjoy an upper hand in the 245-member Upper House of Parliament.
This explains the whole story of politically driven bargaining and political innuendos. Stung by criticisms by the government that they derailed the reform process by not allowing the GST to be passed in the Rajya Sabha, the Congress members have hit back claiming it was the BJP that had delayed GST all these years — “Why (Prime Minister) Narendra Modi opposed the GST Bill when he was the Chief Minister of Gujarat?” The Communist Party of India (Marxist) went on put the blame on the government for stalling the bill because the AIADMK was opposing the same – “The government needs their (the AIADMK’s) support in the Parliament. Had they brought the GST bill then they would not have got the support.”
What else? Even as the government reiterates that the GST Bill “will definitely be passed”, the Congress now wants a constitutional cap of 18 per cent on GST, a dispute resolution authority and dropping of the 1 per cent tax proposed on interstate trade or commerce.
All these demands are outrightly rejected by the government. The reasons being:
a) The constitutional cap of 18 per cent was not there in the Congress Bill that incorporated a Parliament Standing Committee's recommendation in 2013.
b)The Congress had earlier accepted the formula that disputes should be resolved in the GST Council “which is one-third central voting power (and) two-thirds states with a three-fourths majority required for any decision”.
c)the Select Committee recommendations that the 1% additional tax in its present form is likely to lead to “cascading of taxes”.
The impasse over GST casts an ominous shadow on the fate of the bill. In face of the Congress’s hard stand, while the Government on one hand hopes that the “hostility of public opinion” will force the Congress to help in the passage of the GST bill, on the other hand it is seeking to muster support of the regional parties to get it passed in the Rajya Sabha.
Yet, the situation is fluid. Can the government produce an ace and get the Opposition parties on board over GST? For that, politics will require to give way to financial prudence. For, one thing is sure that still not late and a special session can be convened to pass the GST so that its new tax regime doesn’t miss the April 1, 2016 deadline.
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