GST goes to the states: More battles lie ahead

The Goods and Services Tax Bill, which is actually the Constitution (122nd Amendment) Bill 2014, an enabling amendment to the Constitution to permit the introduction of a single Goods And Services Tax for the entire country and to consign to history myriad taxes and maze of laws enacted by the Centre and state governments to ostensibly raise revenues, made history as it passed both Houses of Parliament on Monday evening, with the Lok Sabha approving 443-0 the amendments by the Rajya Sabha when it passed it last week after the Congress Party finally gave its nod.

This was the bone in the NDA’s craw, having become the litmus test of the Narendra Modi government’s ability to carry the “reforms” process forward. The sigh of relief is palpable and there is much optimism that the slowed-down GDP train will gather speed once again. But is this euphoria justified One may recall the Communist Party’s favoured slogan of defiance: “Abhi tho yeh angdai hai, aage aur ladai hai!” (This is just the beginning; there are many battles ahead.). Indeed there are. We have just rounded a bend.

The BJP’s electoral victory in 2014 gave it the courage or gumption to reverse its hitherto opposition to the GST Bill introduced in Parliament by the Congress-led UPA government in 2013. The UPA’s endeavour to have the bill passed failed when several states, specially the ones ruled by the BJP, opposed it. The then Gujarat CM Narendra Modi was most vehement in his opposition to the bill; as for him it vitiated the concept of federalism. The bill lapsed with the dissolution of the 15th Lok Sabha.

No sooner than he became Prime Minister, Mr Modi adopted the UPA’s GST Bill, like many of its other reforms, such as Aadhaar and Direct Benefits Transfer, and dropped his opposition to others such as the Civil Liability for Nuclear Damage Act 2010. This fitted into a pattern of appropriating not just the Congress Party’s history and totems, but also its policies. The UPA’s inability to pass the GST Bill added significantly to the notion that it could not deliver on reforms any longer. It was the aggrieved Congress Party’s turn to now spite the BJP in its new monogrammed reformist suit. The country lost two more years as the two big national parties bickered. That phase seems to have now ended.

The Congress made three demands to offer its support to the GST Bill: a GST rate of 18 per cent be written into the Constitution; a separate and independent disputes resolution mechanism, preferably headed by a high court judge, and for the one per cent inter-state levy proposed in the BJP’s GST Bill to be dropped. Though the Congress dropped its first demand, CPI(M) leader Sitaram Yechury spoke in the House supporting this constitutional cap to “protect the common man”. It will be interesting to know whether Mr Yechury’s party will likewise consider supporting the writing of a cap on unmerited subsidies in the Constitution

But there is a road ahead to traverse before GST finally becomes a reality. With both Houses now having passed the bill, it will have to do the modern ashwamedha ritual. It will be sent to the state legislatures for their clearance and to become a law it must be passed by half of India’s 29 states. Some of the MPs who spoke in the debate expressed some disquiet over the implicit restrictions on the ability of states to impose taxes, particularly sin taxes on tobacco products, as allowed for alcohol. We must see if this unhappiness gets magnified at the state level.

In a country where the future is as uncertain as the past, events have a way of sometimes suddenly cascading into a gridlock. Between now and mid-2017 there are several state Assembly elections due, whose results can turn the national mood towards regression rather than reform. Already, Tamil Nadu is opposed to the GST Bill, calling it an infringement of states’ rights and an assault on its notion of India being a federation of states. The CPI(M) has already signalled its unhappiness with some of the provisions.

The Mumbai-centric Shiv Sena is opposed to the perceived loss of octroi revenue to India’s richest municipal corporation that it has long controlled and milked. Will it pull the rug from underneath the Devendra Fadnavis government’s feet

This bill has to run the gauntlet of regional nationalism and come out unscathed. It doesn’t seem improbable, but the gauntlet must be run.

Sixteen years have gone by since the idea of a nationwide GST began doing the rounds. In a country which has among the world’s highest interest, rates, and a low tax-to-GDP ratio, the length of time implies exponential costs. The delay has certainly cost us much. It is speculated that the GST Bill as law will add to India’s GDP by as much as 1-1.5 per cent annually. For it is now generally agreed that the GST Bill will reduce the incidence of taxation, increase tax revenues and reduce corruption by wiping out complex paperwork and scope for arbitrary and discretionary decisions.

We also seem to underestimate the power of those who will continue to be opposed to GST. State sales taxes are mostly evaded and most consumers are called every day to make choices of payment with a “bill”, meaning with sales tax, or without a “bill”.

Many of us make rational choices. The money that escapes the taxation net nurtures a powerful constituency.

There is also an innate genius in India’s bureaucracy to stall and find new ways to better individual means. We have to see the fine print that will be inserted in the two bills that must now follow. “Abhi tho ye angdai hai....”

The writer, a policy analyst studying economic and security issues, held senior positions in government and industry. He also specialises in the Chinese economy.