RaGa WAITING FOR HIS MOMENT

by Harish Gupta, National Editor, Lokmat Group

Be not afraid of greatness," goes the cliched yet profound line in The Twelfth Night, "Some are born great, some achieve greatness, and others have greatness thrust upon them."

GST: Still A Long Way To Go

by Harish Gupta, National Editor, Lokmat Group

It is universally accepted that a federal country like India badly needs an instrument like Goods and Services Tax (GST) if it must leave behind the colonial legacy of taxes upon taxes. The traditional practice is to tax the cycle wheel maker x% and levy y% on the complete bike, ignoring the tax upon tax on wheel. The problem was partly addressed by Value Added Tax (VAT) in 2005, but it was only partly. As VAT regulations and rates vary across the states, a tendency developed among states to undercut the rates for political gains of the parties in power.

Besides, VAT left uncovered much of the turf as it provided no tax credits for interstate transactions, nor did it apply on services. But GST, as the name indicates, covers all goods and services. Besides, it is an overarching tax that subsumes all indirect taxes under four heads, viz., VAT for intra-state sales, Central sales tax for inter-state sales, excise duty on manufacture, and service tax on all services except the exempt ones. Theoretically, it is simple and clear. And it is revenue neutral, so it will have no adverse effect on tax income of the governments.

However, what has turned GST into such a contentious subject—it will test the Modi government's capacity to get the Rajya Sabha pass the bill—is its essentially non-federal character. It is after all the job of states to manage most of the visible areas of governance, like running schools, hospitals, part-subsidizing rationing system, building roads and bridges, policing, funding the lower judiciary, etc. How well does a party in power at the state level govern its people may depend on a combination of factors, but the volume of state tax revenue is certainly one of them. The fact is, acceptance of GST implies sacrifice of the state's power to raise or lower tax rates. Beside, GST being a tax across the value chain, it hardly promises to make goods and services cheaper. So the fear of inflation dogs state politicians.

These are the reasons why BJP was opposed to GST when the Congress-led UPA government spearheaded the bill, and now that the table has turned, it is BJP which is touting it as a big-ticket reform while Congress till recently was pulling out all stops to stall it. It still is and will most probably use it as leverage against its other prickly issues with government. But now that Congress has lost the numbers and support in the upper house to rustle up a fighting majority, it is expected to be in a mood of acceptance of the GST bill. It may even compromise on its earlier stand that there must be an upper limit to GST included in the very constitutional amendment that goes with the enactment, and may finally settle for a rate band (or "ring fence") in the act. Were it to be featured in the Constitution, amending it in future would have required two-thirds majority in the parliament whereas a simple majority in the lower house is enough to amend a law. But the grumble that may take longer to fade away is due to the states' feeling that they've drawn the short straw.

It is largely a misperception for two reasons. First, GST is a dual tax of which the proceeds are divided between the Centre and the states, based on a formula that will be acceptable to both. Besides, it offers a VAT-like framework across the states, thus making it possible for individual states to act like members of the European Union (EU) and find markets outside the state boundaries at lower cost and with more ease of business. It will also reduce dodgy transactions across the economy, with its consequent salutary impact on state revenues and public morals. It is after all a fact that, prior to introduction of VAT, sales tax machineries at the state level had deteriorated to the depths of the pits. I remember in Mumbai restaurant waiters often whispered into customers' ear: Cash dijiye, parchhi chahiye to tax lagega.

Knowing state governments' sensitivities, the Centre has kept out of GST a range of items on which states are sort of addicted for their tax incomes. The excluded items from GST are: petroleum, HSD, crude oil, gas, Tobacco and, of course, liquor. Maharashtra government earned Rs 13,500 crore last year as excise duty on liquor and another Rs 8,000 crore in VAT. The general estimate is that states in India earn 20 per cent revenue from liquor. Due to over-taxation in Uttar Pradesh, liquor price is so high that booze-happy people drive all the way from Meerut to Delhi to buy their favourite brands at affordable price. Ditto with diesel or petroleum, as their prices widely vary from state to state. A large number of people from Haryana travel to Delhi and UP to get their tanks filled.

Besides, the law still has many grey areas that need to be lighted up. It is a destination based tax, not based on origin (like, say, excise duty). So it must be clearly identifiable where the goods and services are headed. This is a tricky issue with a service like, say, transmission and distribution of power, when part of the service is distributed in states other than where it is generated. It required identification of the ‘point of taxation’ in an unambiguous manner. Therefore, the electricity is also out of the GST purview, for now. But GST is clearly the way forward for the entire nation—not for the Centre alone nor for the prosperous states that produce a lot of dutiable goods and services. For its success, it only requires a world-class IT architecture, and a public awareness that good tax system and good governance are synonymous.

Swamy ke peeche kaun hai?

by Harish Gupta, National Editor, Lokmat Group

The name may be Bond, James Bond, but there is always an 'M' in distant London, the super-boss of the MI6, who dictates each of his moves like a puppeteer to the puppet.