#SupportGST: 'It will open up more options to state govts, speed up institutional reforms'

The GST Bill in the Lok Sabha is one the pending bills in Parliament. The task force GST in 2004 proposed a revamp of India’s indirect taxation system. The intention of the task force was to replace tax assessment. It also wanted to implement Fiscal Responsibility and Budget Management Act, 2003.

It is a milestone in India’s public finance, especially in government spending. It is meant to reduce state expenditure. It will bring about a financial discipline on state governments and the central government. It proposes to maintain fiscal deficit by 0.3 percentage of GDP and revenue deficit by 0.5 percent of GDP.

The public borrowing of state governments will be affected by the Bill. It restricts market borrowings for development projects including welfare programmes.

The purpose of the Fiscal Responsibility and Budget Management Act, 2003 (FRBM) is still not clear to the common man who is dependent on government supported welfare programmes.

The period between 2003 to 2014 (till the GST bill was brought in) witnessed many changes in India’s government-funded development programmes. Introducing Public Private Partnership in infrastructure development, target/demand-driven development programmes and facilitating private corporate sector to participate in mutual fund markets are in fact the result of the FRBM Act.

Government generates income through profit from public sector and taxes. In India, public sector is not meant for profit alone; it has the responsibility of ensuring equity in access to rights. It is quite unwise to demand high profits from public sector institutions. So, tax income is the crucial source of income for the survival of the government.

Central and state governments are increasingly dependent on tax incomes for running essential services. The introduction of Value Added Tax (VAT) was the beginning of the indirect tax reform in India. Whatever be the political affiliation, the central government and state government is struggling to raise tax incomes.

The FRBM Act regulates the deficit, yet there is no serious attempt made to increase the Tax-GDP ratio. GST does not impose any drastic additional tax. It is impossible for the government to do so. The GST bill has to be assessed in this critical context. It proposes a revamping of India’s indirect tax system.

As per the GST Bill section 269A, ‘goods and services tax on supplies in the course of inter-State trade or commerce shall be levied and collected by the Government of India and such tax shall be apportioned between the Union and the States in the manner as may be provided by Parliament by law on the recommendations of the Goods and Services Tax Council’.

It proposes a tax of collecting and sharing by integrating existing indirect tax collection schemes. The central government has to constitute an institutional structure for the distribution of the tax collected.

The critical dilemma of the GST is that no ruling party in the country can oppose the institutional rationale of the Act. It proposes a revised tax collection mechanism and ensures a fair share to state governments. If it had proposed any additional tax burden on corporate sector and consumers, the response could have been different. This is the significance of the GST Bill. It is an inevitable outcome of the FRBM Act, and hence, political parties who are responsible for the FRBM Act should own the GST Bill.

The Section 9 (2) Parliament may, by law, formulate the principles for determining the place of supply, and when a supply of goods, or of services, or both takes place in the course of inter-State trade or commerce’. So it is obvious that it is going to be a task for the government to pursue the GST Bill.

The Act is a promise; it promises a single tax structure. It is the responsibility of political parties to fulfill their promises. It takes state government and huge consumers into confidence. GST is a continuation of reform, so there is no point in delaying it. It will open more options to state government and speed up other institutional reforms associated with the implementation of the project.

(The author is Assistant Professor, Jamsetji Tata School of  Disaster Studies at Tata Institute of Social Sciences. Views are personal)