Editor’s note: The Goods and Services Tax (GST) Bill has assumed primary importance in the country’s political and economic quarters, now that we are just over a week away from the monsoon session of Parliament – it begins on 18 July. The constitutional amendment Bill, considered the biggest tax reform in a decade, has failed to clear the Rajya Sabha due to the opposition of Congress in consecutive Parliament sessions, mainly on account of the demand from Congress for inclusion of GST rate in the Bill.
This time, there seems to be a broad consensus on other two demands (1% state levy and dispute resolution mechanism).The government appears closer than ever to the passage of the Bill following the recent round of RS polls. But Congress opposition could still potentially derail the Bill since the numbers may not still add up. It is true that BJP too had opposed GST in the past, but that cannot be the reason to blackball the Bill.
It is imperative that the legislation’s passage is hastened for three reasons. First, so the April, 2017 deadline doesn’t lapse and state governments have time to pass their own GST legislation and put in place required systems; there is a ‘time value’ attached to GST passage. Second, to put the economy on a “high growth path" broadening the tax base (at least 1.5% to 2% boost is expected on GDP post the roll out of GST). Third, given that last two years of any government is typically focused on getting re-elected rather than reforms push, chances of GST passage diminish with the time the BJP has as the ruling power.
Economists agree that India is in a sweet spot now with rest of the world gripped in a slowdown. This is our chance to get big ticket reforms going and consolidate our position among the EMEs.
Given the significance of the GST Bill for the country, Firstpost is running a #SupportGST campaign by inviting articles from industrialists, economists, academics and politicians to underscore the need for early passage of the Bill in the coming monsoon session.
There are three major points of contention between Congress and the BJP on Goods and Services Tax (GST) issue.
Whether to include the GST rate (agreed around 18 per cent) in the constitution, do away with the inter-state levies and constitute an independent dispute resolution mechanism. Of the three, the only major point of difference is capping GST in the Bill, but it is not something that has the potential to perennially block the passage of this crucial piece of reform.
The GST Bill is the biggest tax reform India has ever seen to make the process transparent and broad base the tax net. This is critical for India’s ambitions as a global manufacturing hub. That’s the reason even the International Monetary Fund (IMF) has highlighted this as an area of concern in its annual article IV consultation report released in March.
"To remain in the economic sweet spot, Indian must ensure forward momentum of its programme of economic reforms,'' IMF said.
The GST Bill is the biggest transformational initiative in taxes ever since value-added tax (VAT) was introduced in India. It promises to create a single national market for India, a freedom that has been there since India got her independence in 1947 even though we are united as a country, divided by 29 regional markets, 100s of check posts, huge corruption and a very inefficient supply chain system.
India is uncompetitive primarily because of huge supply chain costs. Our supply chain costs are 14 percent of the country’s GDP, while it is 6 percent in China and 5 percent in the US. Out of this 14 percent, a large percentage is lost due to lack of a single unified market which leads to slower transportation on roads, unnecessary documents, huge bribes, multiple storage spaces and overall delay in inputs supplies and output delivery.
The lack of a national market and multiple taxes leads to high tax evasion as the entire value chain is broken in multiple instances with no single Income Tax (I-T) system to track the same.
The GST Bill is expected to add 1 to 2 percent to our GDP every year and reduce costs overall for business and consumers. It will reduce the stranglehold that tax officials have on business in India and help destroy crony capitalism too—those who make money by evasion of taxes.
The GST will be based on a robust I-T platform where all transactions will be captured, thus identifying tax evaders and giving enormous data which can be mined to find patterns and solutions to many challenges. It will also reduce the costs for exports as automated transfer of tax collections between various states and settlement will ensure that costs become lower.
About 48.5 percent of India’s GDP is informal and cash-based as per Professor Vaidyanathan’s book, Indian Uninc. At least 20 percent of these will come into the formal network allowing multiple small vendors to get credit and participate in value creation.
It will also have a great impact on consuming states as the players for consumption will get tax thus ensuring that states which are consuming centres benefit as against some states that are manufacturing due to historical reasons.
The GST has been in waiting for long and putting this in place is the prime national responsibility of Parliament in transforming India and putting her on a high growth path and accelerate job creation.
The Congress has stalled its execution in the last two years like the BJP did during the UPA rule earlier. Both the parties have hurt India’s economic interest and job creation enormously. Now there is no excuse for any party to stall its formalisation as more states have come on board.
The NDA should take courage, isolate the Congress in case it plays truant again and, force a vote to get this done. There is no more time to be lost in unnecessary disruption of Parliament as the time has come for the great push forward.
(The author is a leading angel investor, Chairman of Manipal Global Education and ex-member Board of Directors, Infosys. Views are personal)
Editor's Note: This article was originally published on 13 July. It is being republished in light of the Monsoon Session in Parliament that begins on Monday- 18, July
Updated Date: Jul 18, 2016 11:26 AM