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Todays Date
18 December 2017

P Chidambaram: History in the making for The GST Bill?

By P Chidambaram, Former Finance minister of India.

Stake holders, down to the common citizen, must be educated on GST. Nothing will be lost if a new date is fixed, allowing sufficient time for everyone to get fully ready. We are on the cusp of the most important structural transformation of the indirect tax system. Let us not flunk the test

We are witnesses to history in the making. The question is: will it be made?

In the Budget Speech of 2005-06, I had set the goal of a Goods and Services Tax (GST). The GST proposal has had a bumpy ride. The irony is that everyone agrees that a GST is necessary, but cannot agree upon the scope, form and content of the GST.

The promise of article 301

The fundamental objective of GST is to redeem the promise of Article 301 in Part XIII of the Constitution of India: “Subject to the other provisions of this Part, trade, commerce and intercourse throughout the territory of India shall be free.”

But the reality is different

The history of inter-state trade and commerce in India is a sordid story of discriminatory taxes, undue preferences, trade and non-trade barriers, entry tax, octroi, and check posts. A newcomer would have thought that India was not one republic but a continent that consisted of many independent republics. The Central government and the state governments used their powers of taxation to the hilt. They may have had a good reason to do so, but they failed to see that fewer and lower taxes would actually yield more revenue than numerous stiff taxes.

GST is intended to sweep away many taxes. An ideal GST should subsume central excise duty, service tax, additional duties of excise, additional and special additional duties of customs, and Central surcharges and cesses. It should also subsume state taxes such as VAT, sales tax, entertainment tax and entry tax not levied by local bodies, luxury tax, taxes on lottery, betting and gambling, tax on advertisements, and state surcharges and cesses. An ideal GST should also apply to all goods and services with nil or very few exemptions.

After a tortuous journey of nearly six years, the UPA government introduced the Constitution (115th Amendment) Bill in March 2011.

Despite a report of the Standing Committee, largely supportive and helpful, the Bill was opposed by some state governments, mainly BJP governments, including Gujarat’s. Hence the Bill could not be passed and it lapsed on the dissolution of the 15th Lok Sabha.

The u-turn and the bill

Thankfully, the BJP did a U-turn and became an ardent supporter of GST. The BJP government introduced the Constitution (122nd Amendment) Bill in December 2014. It differed from the earlier Bill on many crucial aspects. Nevertheless, there was a Bill, it was a good starting point, it was possible to forge a consensus either in the Standing Committee or on the floor of Parliament, and pass it in both Houses.

Alas, that did not happen. The Standing Committee was by-passed and the Bill was pushed through the Lok Sabha where the BJP has an absolute majority. As expected, it ran into a wall in the Rajya Sabha where the BJP does not have a majority and has landed where it should have landed in the first place — a committee, this time a Select Committee.

Here are some issues for the Select Committee. The path to a good Bill — and passage of the Bill — lies in a satisfactory resolution of these issues:

1. What is the indicative aggregate rate of GST (Central GST plus State GST)? It is whispered it will be 26 to 28 per cent, which is exorbitant. The GST Council will recommend the rates, including floor rates and bands. In my view, it should be not more than 18 per cent.
2. What are the taxes that will be continued alongside GST?
3. What are the excluded goods and services? I can understand alcoholic liquors being kept out, but why exclude petroleum products, tobacco and electricity?
4. Have the states agreed to dismantle all check posts and entry barriers before a stipulated date?
5. Is the IT backbone to support the administration of GST fully ready and in place?

Three more issues 

There are three other issues that merit mention separately. The first is Section 18 of the Bill. This provision imposes an additional tax of not more than 1 per cent on goods in the course of inter-state trade that will be assigned to the states (note the plural). It will be for two years, the provision reads, or for such period as the GST Council may recommend. This is a retrograde provision and negates the very character of GST of a destination-based tax. The Chief Economic Adviser, Dr Arvind Subramanian, has criticised the provision. Section 18 must go.

Secondly, the Bill leaves the dispute resolution mechanism to be decided by the GST Council later. It should be spelt out in the Bill.

The third issue is the date of effect of GST which, under the Bill, is April 1, 2016.  The Bill before Parliament is only the amendment to the Constitution. It must be followed by a fleshed-out GST Bill and then by GST rules and regulations. Trade and industry need to invest in IT to comply with the new regime. Stake holders, down to the common citizen, must be educated on GST. Nothing has happened so far in these areas. Nothing will be lost if a new date is fixed, allowing sufficient time for everyone to get fully ready.

We are on the cusp of the most important structural transformation of the indirect tax system. Let us not flunk the test.

Source: Indian Express (

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