GST Bill slated for Rajya Sabha test: Rahul Gandhi shouldn't block this key tax reform

So the Constitution (122nd Amendment) Bill, better known as the GST (goods and services tax) Bill has finally cleared the Lok Sabha hurdle. But that was hardly much of a hurdle – the government has the numbers in the lower House. Fortunately, it did not leave everything to chance and did some deft political management (getting the Trinamool Congress and, at the last minute, the Biju Janata Dal on board) and some whip-cracking (making sure all its MPs were present). But what of the Rajya Sabha? Will the Congress really give it a tough time in the Rajya Sabha, resulting in the passage of the Bill getting delayed? If the Congress is smart, it will not. [caption id=“attachment_2231560” align=“alignleft” width=“380”]  File photo of proceedings in Rajya Sabha.  Image: RajyaSabhaTV[/caption] It can redeem the strong anti-industry messaging that its vice-president in his new image has given, constantly sniping at the Narendra Modi government for being pro-industry. Accusing a government of favouring a few corporate houses is one thing, but Rahul Gandhi’s speech painted all industry with the same brush, depicting it as evil and rapacious. Blocking the land acquisition law (flawed though this opposition is) may get the Congress some dividends in terms of support from farmers and tribals (remember, however, that this did not work in the 2014 elections). But blocking the GST Bill does not help anyone, even as it harms industry and the economy. Not blocking this could be Rahul Gandhi’s way of extending a conciliatory hand to industry. Assuming the Congress does see reason and will be content to only make the government sweat a little and the GST Bill does actually clear the Rajya Sabha, will implementation be on track? Well, half the state assemblies have to clear the Bill as well. That may also not be much of a problem. So if all goes well, what is being touted as the most revolutionary tax reform will debut on 1 April 2016. But how revolutionary is it? First off, one does not know the GST rate, or whether it will be a single rate or a dual rate (one for centre and one for states). There was an indication that it will be above 14 per cent, since the budget hiked the service tax rate to that figure on the ground that this was to align the service tax to GST. But that has been deferred for now. The success of GST will depend a great deal on the rate. According to R. Kavita Rao, professor at NIPFP who has been closely involved with the GST design process, there is no ideal rate. Scandinavian countries have a high rate, in Canada it is in the middle (14-15 per cent) while Japan has a low 6 per cent. In India the matter gets complicated because GST is not starting on a clean slate but is replacing taxes that the centre and the states are currently levying. “We don’t have the luxury of doing it the way other countries do,” she had told Firstpost in January. Canada and Brazil were the only two countries, she pointed out, which had dual rates; most federal countries had a single rate, with varying levels of revenue sharing. The rate, however, will be the last decision. Once the Bill is passed by the state assemblies, a GST Council will be set up which will vet the design and the process. “Everything else will have to be brought to the plate before the rate is announced,” Rao feels. Experts have pointed out that the Bill is not the ideal one. In this article in the Financial Express, M. Govind Rao, former member of the Fourteenth Finance Commission and former head of the National Institute of Public Finance and Policy (NIPFP) notes three flaws in the Bill. One, a whole lot of issues have been left to negotiation in the GST Council. Two, leaving out petroleum and natural gas will cause cascading – the very problem GST was supposed to address. Three, the continuation of the inter-state sales tax of 1 per cent, which will now cover services as well instead of just goods. There are other issues as well. In this interview with Firstpost, Rao points out that there is no clarity on how GST will be administered. While the general impression is that there will be only one administration, in reality there will be two, she pointed out. Both the governments, she noted, can do separate audits and take a different view on the same transaction. This, however, is not being talked about at all, though this could prove a major problem once GST does get implemented. As the Bill makes it way through the legislative maze, perhaps back room efforts to address some of these issues could start. GST is too important to be dealt with casually.