What's so great about GST?

That the political parties have come together to break the parliamentary deadlock of not functioning is itself a matter for celebration.

Not letting Parliament function was a strategy of the BJP in Opposition. The Congress and Left adopted the same strategy.

This must never happen. Parliamentary institutions are meant to function.

If legislatures lose their institutional integrity, democracy is mauled in the process.

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It is true that it is difficult to stand up to perverse majoritarian governments.

But knocking out Parliament's working is too big a price to pay for unruly dissent. We cannot deny Parliament as theatre, but its cessation by bad behaviour is bad theatre.

It does not matter which party is in power. After this amendment, Parliament needs be put on its constitutional track, never to lapse again. The state legislators should also cease and desist accordingly.

Federalism

Financial federalism works on the assumption that somehow or the other, the states will be financially viable. We have created new smaller states to join other smaller states.

Even the larger states suffer from a lack of funds - depending on shares and grants from the Union. The apprehension of state governments is understandable.

The second important concern is over the burden of taxation on the consumer - especially the poor.

The third, probably the primary reason for this change, is to enable the business and trading community to have a smooth run in their transactions, tax accounting and against harassment.

To that extent, this change is really part of the reforms from 1992 to make business easier and make India one market.

It is inextricably connected with opening up India for investment - especially with respect to goods and services.

In the Select Committee on the Bill, there were important dissents opposing a proposal on the one per cent additional tax to go to the states (as self-defeating) and on votes in the GST council. That was at a preliminary stage.

Eventually, what the Bill did was to rewrite the revenue empowerments of the Centre and the states in respect to indirect taxation on goods and services - requiring constitutional amendments to legislative federalism.

The new provision permits these taxes to both the Union and the states, removing the application of the doctrine of repugnancy (state laws not to infringe Union laws unless approved by the President) to make state GST laws subject to the power of the Union's exclusive GST power over interstate goods and services.

Complexity

The Union and states will operate in different areas.

As a consequence of this empowerment, many cobweb taxes (sales tax, VAT, customs, octroi, entry tax, purchase tax, luxury tax, service taxes, etc) are swept away and divided into the two neat categories of inter-state (Union) and intra-state (states) GSTs, the former to be apportioned.

There is some complexity to be worked out through the machinery provisions; and, some unavoidable cascading effect.

Also read - GST Bill an example of half-baked and vague reform

There are some exceptions and adjustments in taking out alcohol from GST (leaving an important power concerning prohibitions intact) but allowing tobacco within GST; and deferring taxes on petroleum provisions till later - to put an important part of the economy on hold. We can see this as partial concessions to ideology (prohibition) and practicality (petroleum).

But the practicalities of deferment needed rigorous working out.

But part of what is claimed for GST is as deceptive as the story of the dahi seller who dreams he will sell more and more earthen pots of dahi until the one he carries falls.

I can understand the claim of a smoother machinery of indirect taxes. But in July 2016, PM Modi claimed that this would necessarily enable poverty alleviation.

Understanding

I have doubts that the PM really understands more than a propagatory overview.

Hence, his silence of this all too important measures which he is due to address soon. The PM's primary claim is that this measure will alleviate poverty because of the widening of the tax base.

This is illusory as any student of tax distribution knows. Increasing the tax will impact the consumer. Decreasing it will affect state revenues.

We cannot also run away from economic adviser Arvind Subramanian's statement "GST is fiendishly, mind-bogglingly complex to administer".

The jury is still out on fixation of the percentage especially as the Union suggests that the rate is likely to be 18 per cent or more.

The states lobby for more and the consumers for less. Coincidentally, a nine-judge bench is hearing whether tax is an impediment to freedom of trade, inclining to the view that it does not.

Also read - GST Bill will rob us of all the fun

The amendment will need ratification by 50 per cent of the states. Following an unfortunate Supreme Court decision as soon as the 50 per cent figure is reached, the president can treat the amendment ratified.

Let's wait until all the states discuss the amendment. After this implementing, legislation has to be passed.

If the devil is in the detail, the devil has still to play his hand. Two cheers for GST.

The first cheer because it broke the deadlock to enable Parliament's functioning.

The second cheer because GST is an important change to simplify the tax structure.

On the third cheer, judgment is reserved until we find out how it works.

(Courtesy of Mail Today.)