At last, the main opposition party Congress relented on its rigid posture of GST and the government agreeing to meet each other half-way. Congress gave up insistence on writing in the maximum possible tax rate in the constitutional amendment bill while the government accommodated the Congress on the special levy of 1 percent to compensate the producing / manufacturing States for the likely loss of revenue. There were other minor adjustments which were arrived at in a spirit of mutual accommodation, underlining the broad point that once good sense prevails, the ruling and the opposition parties are quite capable of working in the larger national interest.
As to the questions why the Congress dragged its feet for over two years and what it gained delaying the passage of a bill which by the widest possible consensus among experts is set to improve the tax collection system and boost revenue there are no definite answers.
The Constitution (122nd) Amendment Bill has been passed in RS, paving the way for one of the biggest tax reforms in the country. Now that the Rajya Sabha has put its stamp on this amendment, the Lok Sabha would be required to give its nod. The GST Bill, as it is popularly called, will still need to be okayed by the States. The procedural requirements are such it would be quite an achievement if the GST can be enforced from the start of the next financial year on 1 April, 2017. The Government remains hopeful though, and is committed to work to a tight timeline.
Once the UPA-II got bogged down in various corruption scams, the government lost the appetite for pushing economic reforms. When in May 2014 the NDA returned to power under Narendra Modi, it revived the GST Bill but the Congress now played spoilsport, refusing to hear any plea to support a measure it was itself keen to pass while in power. More than two years later, wiser counsel seems to have prevailed.
Though the GST aims to make one big common Indian market, subsuming in it a host of Central and State taxes, it is still a half-measure. For, the exclusion of alcoholic liquor for human consumption and petroleum crude, high speed diesel, petrol, natural gas and aviation turbine fuel allows each State to play around with their own levies.
This will distort the common market concept, especially the State taxes on diesel and petrol.
On the plus side, the merger of so many taxes will free up a lot of tax bureaucracies, facilitate easier collection and help attack evasion and theft of manufacturing duties as at present. The principle of set-offs and tax on value additions can eventually lead to lower taxes on goods. Right now there is tax on tax at every point of goods moving from manufacturer to wholesaler to retailer while under the new system at each stage the tax paid previously will be discounted to work out the new tax component, thus leading to a substantial reduction in the end price of goods.
GST is an indirect tax reform that will primarily save businesses from Inspector Raj. Some goods will become cheaper, but a lot of services may cost more. Tax evasion will become difficult. The Central and state governments did not fight for citizens' concern for lower taxes.
