From almost all states opposing the Goods and Services Tax (GST) on some grounds or the other till two years ago, apparently only Tamil Nadu is still holding out. At least that’s what Union Finance Minister Arun Jaitely informs the country. According to him, “virtually” all states have agreed to GST, except Tamil Nadu.
There was no word on Jammu and Kashmir, which had said even last year that it was unlikely to comply with the GST regime because it would take away the state’s exclusive authority on tax legislation. For J&K, it’s about the unwillingness to give up its special powers; or in simple terms, its autonomy as a state.
That’s the problem with Tamil Nadu too. Its reasons for resisting a uniform countrywide tax system that will subsume a host of national and state taxes is this fear. It may appear economic — or rather its manifestations might be economic — but the real reason is political. When J&K flags special powers and suggests resource-sharing instead of revenue sharing for effective “cooperative federalism” than “coercive federalism”, Tamil Nadu’s apparent fear is the loss of autonomy than loss of revenue when the country steamrolls uniform systems on an un-uniform country.
The Union Government has been insisting that it would compensate for the loss of revenues in the states for five years (100 percent for the first three years, and 75 percent and 50 percent in the fourth and fifth years respectively) by which time the GST would have been established. That may be fine with the consuming states, which obviously would only gain from its share of a uniform tax, but Tamil Nadu is a manufacturing state and hence losing the power of collecting taxes at origin is a loss of an upper hand that it had assiduously built over the years. Compensation of losses cannot replace that sense of autonomy.
In fact, Chief Minister Jayalalithaa’s explainer on Tuesday on why the state is not happy with the GST betrays this apprehension. Among her concerns, the foremost seems to be about the GST council, the constitutional body that will be set up to govern the new regime. And it’s political.
According to her, the Council would jeopardise the autonomy of the state in fiscal matters and would also impinge on the legislative sovereignty of the state because the decision-making and voting weight give the Centre the upper hand and “an effective veto”. More over, there is no distinction among the states in weight, which she feels should be based on their respective representation in Rajya Sabha. As the chief minister of the country’s second largest economy and the second most industrialised state, where the industrial growth far exceeds the national average, she is justified in being protective about her political and economic autonomy. There is no need for federal parity at the cost of the state’s interests.
As she says, the GST has different implications on different states based on the size and reliance on tax-revenues. Some have nothing to lose and only to gain and hence easily accede to a uniform system, while others, which are origins of wealth fear a justifiable sense of loss. “It is quite clear that a manufacturing state like Tamil Nadu will permanently lose substantial revenue if GST is implemented, due to the shift of the levy from the point of origin to the point of destination and also due to the phasing out of central sales tax and the transfer of input tax credit on inter-state sales and inter-state stock transfers to the destination states. Due to the difficulty in fixing even nominally high revenue-neutral rates, it is expected that the extent of revenue loss under GST would be around Rs 9,270 crore for Tamil Nadu,” Jayalalithaa said.
On the demand of keeping petroleum and petroleum products out of the ambit of GST permanently, Jayalalithaa is not alone. For TN, along with Maharashtra and Andhra Pradesh, it’s a huge earner. It accounts for about 20 percent of the sales tax collections in these states, which in fact top the list. The scale and relevance of this sector was noted in TN’s interim budget presented in February, which said the loss from Petroleum taxes because of falling prices and poor realisation alone set the state’s revenue back by Rs 4000 crore.
TN’s consent without a hard bargain will be a compromise on whatever autonomy, even if it’s psychological, it can retain. Similarly, its position on tobacco is also well placed because states should be allowed to tax tobacco and liquor freely - even punitively.
GST may or may not work the way it has done elsewhere in the world, particularly in rich countries. It may widen the tax base and reduce the overall tax burden, may spur economic growth and lead to more tax revenues; but the fear of TN, with its hard-earned political and economic autonomy is not misplaced because India is not Australia or Canada. It’s the state and local administrations that deliver services to the people of India, and not the Centre, and hence TN cannot give up even part of its autonomy without a debate. It’s a state that always stood up to attempts of socio-political homogenisation. Resistance to GST is a reflection of this awareness and an assertion of its multi-faceted autonomy.