Mr FM, why pass a flawed Cong-drafted GST law when you can do better?
The 2014 electoral verdict reflected the expectation that the BJP would correct the wrongs committed by the Congress-led UPA.
By Shalini Singh
Dear Mr Arun Jaitley,
I read your blog on the Goods and Services Tax (GST) Bill and why you believe the Congress party is being obstructive/disruptive by not allowing Parliament to function.
You have my deepest sympathies. In the UPA’s 10-year scam-ridden term, the Congress party has more than amply demonstrated that it is completely closed to good counsel. This makes the possibility of them submitting to reason fairly remote.
What makes this more of a lost cause is the fact that political strategy is repetitively used as a tool for political gain rather than for the common good.
However, for a journalist, the deeper concern is the impact of the GST on common folk, whom taxes impact the most. In this context, I believe that points 1, 2, 5 and 8 in your blog are contentious, requiring serious discussion and review.
I support the point raised by you that the matter of how revenue should be carved out between the Centre and the States is best left to the Finance Commissions. Similarly, according of special status to certain territories for the purpose of fiscal transfers should not be included in the Bill, since this will distract from the core objectives of the legislation while complicating the legislation by introducing special interest groups. It is equally clear that the voting representation does need to allow veto powers to the Centre to maintain the balance provided under our constitutional framework while, at the same time, restricting the Centre from bulldozing the states.
The Congress’ proposal of setting up a GST Council to adjudicate/settle disputes is also farfetched. Existing excise, customs and service tax tribunals can evolve into GST tribunals. Along with the courts, these tribunals should be allowed to play their rightful role in interpreting the GST Bill and settling disputes. On all these issues, you are spot on, Mr FM.
But I am at a loss to understand why you are at such pains to establish that the GST Bill is basically the Congress’ work in progress, with Congress-ruled states approving the few changes that have been made. This implies two things: that you believe the work done by the Congress on the GST is flawless and, second, that there has been no application of mind, and by consequence, absolutely no contribution to the GST Bill by the finance ministry, which you run.
If the people of India had as much faith in the Congress as you, and wanted a continuation of Congress policies, they would have voted the Congress back to power for a third term rather than the BJP. The 2014 electoral verdict reflected the expectation that the BJP would correct the wrongs committed by the Congress-led UPA. In that sense, is it misplaced for us to expect significant improvements in the Bill?
Experts lament that the finance ministry has not paid attention to the impact of the GST on the economy and on the NDA’s own ‘Make in India’ policy, completely overlooking many pertinent issues raised by industry in the process. I raised some of these issues in my earlier piece some of which, have also been raised by the Congress, but remain unaddressed in your blog.
Mr FM, while you are correct in pointing out that in a dynamic environment, tax rates or caps cannot be fixed in the Constitution, the Congress is inadvertently doing your government a favour by calling for a far lower GST rate of 18 percent, which is already 64 percent higher than the originally proposed Revenue Neutral Rate of 11 percent.
The 27 percent rate published by the National Institute of Public Finance and Policy (NIPFP) will result in an additional 13 percent tax on services, doubling indirect tax collections. This tax burden, along with the resultant spiraling inflation and demand compression, will largely be shared by the middle class and urban citizens, severely alienating your core vote bank.
And you could be wrong that this decision is best left to the GST Council, considering that it has already slipped up by keeping certain sectors out of the purview of the GST while levying a regressive 1 percent additional levy on supply of goods and services in the course of inter-state trade and commerce.
Further, your argument that your predecessors, Mr P Chidambaram and Mr Pranab Mukherjee did not define "supply" is hardly a case for you not to define "supply". Refusing to clarify what constitutes "supply" promises to fuel corruption while dragging honest taxpayers into litigation, which will increase the compliance burden on companies manifold.
If this Bill goes through as is, it will balkanise a legal entity for tax purposes into state-wise entities that will be required to maintain separate ledgers of flow of services and goods to each other in order to comply with the new regime. You will effectively transform the Union of India into a United States of India by introducing valuation and transfer pricing for flow of goods and services within the same legal entity between different states.
Under the present Bill, it is perfectly valid for Maharashtra, for example, to raise a GST demand on a CEO and Board of Directors based there for providing supervisory services to other offices/units of the company located outside the State. How does this unnecessary complexity help your government’s ‘Make in India’ policy, which rests on simplifying the business climate?
As an eminent lawyer, you would also agree that taxing “supply” to self violates the fundamental concept of “Legal Person” which means a person/entity cannot enter into a contractual obligation with himself and therefore cannot transact with himself.
This principle, which originated in ancient Rome, is well established in Common Law and our Indian legal system. This constitutional amendment, by introducing a value to, and taxing, self-supply, undermines the concept of a “Legal Person”. Such a move will shake the foundations of our existing commercial laws and case laws, leading to unimaginable consequences in the future.
You argue that ‘GST charged on goods and services would be VATable and not have any cascading effect’, but it is well known that procedural hassles do delay release of credit. Sources fear that as much as 25 percent of the input credit will fall through because suppliers will not upload invoices. They hint that the government is secretly counting on this as an additional source of revenue.
The Congress is also correct in insisting that electricity, tobacco products and alcohol for human consumption be given the same treatment as petroleum. Taxes can never be simplified by the GST Bill, as you claim, if the input credit chain is broken by keeping liquor, electricity, petroleum (till notified), and even possibly real estate out of GST. A half-baked GST will do more harm than good.
Finally, your opposition to the Congress’s demand for the deletion of a two-year transient provision providing for an additional 1 percent levy credited to the exporting states on grounds that it allays the ‘fears’ of revenue loss of manufacturing states appears unfounded. The Centre has already agreed to compensate states fully for revenue loss for five years, so where is the need for the additional 1 percent tax?
Though I agree with your analysis that “the Congress Party and its leader could be upset with the government for political reasons and with the electorate for the 2014 verdict, reflecting in negativism, obstructionism and inflicting of economic injury on the country”, I do believe a review of the GST Bill in the interest of excellence that will eventually contribute to the NDA’s scorecard is not a misplaced demand.
Surely, the NDA would not want to blindly follow the Congress lead in inflicting “economic injury” through these glaring anomalies/blind spots in the GST legislation?
(The author is a senior journalist.)
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