State Govts are advantageously placed to get some of their dues
By Anjan Roy
The GST Council meeting on June 22 will be somewhat different from any previous ones because of the changed political situation in the country. Ever since the GST came in to effect in the first Modi government, the opposition has been on the back foot. Now with the reinvigorated opposition and there being a coalition government at the centre, the state governments from varying political affiliations could be expected to have a stronger voice.
But really it should have been otherwise. Though the GST system of taxation was conceptualised and the first draft on a comprehensive goods and services tax was presented to the UPA government under Dr Manmohan Singh, the report was never implemented.
UPA had a clear run between 2004 and 2014. But during that long period, the government could never make up its mind and implement it in earnest while all the time full mouthing the advantages of a unified tax system for economic integration of the country into a single market.
But the entire back office work for launching such a system was being readied for an eventual roll out. Because this infrastructure for GST was more or less being developed, the basic ideas thrashed out and some kind of vision of a unified tax system was coalescing, the first Modi government could launch it with such fanfare.
But nonetheless very few state governments could really put forward any fruitful critiques of the GST system as it was being ironed out. The Congress Party was the principal originator and backer of the idea first articulated by Dr Vijay Kelkar. The state governments could not really disown it.
The BJP had also adopted the Congress idea lock stock and barrel, even though one of its prominent leaders had opposed it bitterly in his earlier avatar as chief minister. Only two states, West Bengal and Kerala, used to present their criticisms. But towards the end, West Bengal was won over by making the state finance minister the principal interlocutor for its moderated roll out.
As a result, the current GST system had evolved in ways that the original proponents had not envisaged. The basic shortcoming of the prevailing GST system is its multiple rates. In the basic GST report, only three rates were proposed, replacing a system of myriad rates under myriad state government indirect tax regimes. Even the central government had any number of rates and slabs on any number of commodities.
These were to be rationalised into just a three-slab structure: 3%, 12% and 28%, apart from, of course, a 0% slab. Additionally, under the original proposal all goods and services were to be brought under the tax and they would be no piecemeal exemptions. This proposal for ultimate clarity in devising a tax regime for the entire country as a single market turned out to be only an economist's utopia.
In practice, rates structure witnessed inflation. There would of course be a zero rate category for some handpicked commodities in services. But then, over its implementation, and in the current dispensation, there are over six rates. Besides, three main commodities remain outside the purview of the GST regime, namely, tobacco, petroleum and alcohol. They still remain under the dual charge of the centre and the state governments.
There is a grudging acceptance of the stance that the rate structure should someday be rationalised and reduced. But when that can happen remains in the realm of probability.
But there is another issue on which hardly any consensus is there. The withdrawal of the exclusion of the three heavy-duty items from the purview of GST remit is undecided and not agreed. As a result, the impact on the final price of these goods is considerable.
Take for example petroleum. The centre imposes its part of duty, the state governments levy their surcharges and thus the incidence of the combined imposts far outweigh the imported price. Of course, one can argue that a stiff price for petroleum is good as it should discourage rising consumption.
The state governments are loathe to part their taxing powers on these articles as these are the vestigial areas left for them to mop up a little extra revenue. After all, they have agreed to surrender their taxing rights for the rest of the commodities and services.
Admittedly, over the period of its functioning, the GST regime has had delivered some striking gains. The fragmented market of the country has been integrated into a whole. No longer has a truck had to stop at every state border and tackle the inspectors or others. They had always ended up paying grease money.
We have achieved the basic objective of one country, one tax. But it is time for some fundamental rethinking and fine tuning of the system to suit the changing requirements.
Now that we will have a new political dispensation a more productive centre-state co-operative federalism could be pursued for a healthier fiscal structure. (IPA Service)
