The opposition unity led by the Congress party and Trinamool Congress leader Mamata Banerjee on demonetization appears set to derail implementation of the goods and services tax (GST) from April 1 next year.
If West Bengal chief minister Mamata Banerjee’s support was instrumental in passing the Goods and Services Tax (GST) constitutional amendment Bill in the monsoon session of Parliament even in the absence of an NDA majority in the Rajya Sabha, her opposition to the integrated indirect tax structure appears all set to derail its implementation now, thanks to the demonetisation of Rs 500-1000 notes.
Prime minister Narendra Modi and finance minister Arun Jaitley must have gathered by now that implementing GST from April 1 next year has slipped out of their hand from the West Bengal finance minister Amit Mitra’s statement that the demonetisation and the resulting turmoil has made the target unlikely. Incidentally, it was Mitra who played a big role as the chief of the empowered committee of state finance ministers on GST in cobbling a consensus of the states to support GST earlier.
Even though the opinion amongst the experts and politicians would be divided on what will be the impact of demonetisation on the GDP, depending on which side they are, considering Mitra’s credentials as an economist and also an industry spokesman in his previous avatar as the secretary general of Ficci, his argument that the likely 2% hit makes GST untenable at this juncture, stands on a sticky wicket.
But, that is not the point, Mitra’s proposed analysis of the impact in different states of the demonetisation itself may prove him wrong – the bigger concern for PM Modi is that the opposition unity in Parliament over demonetisation impact on public life, in all probability, will get extended to opposing the passage of GST laws that are necessary for its implementation.
Even those like Bihar chief minister Nitish Kumar who have supported demonetization may join the opposition ranks sensing a larger unity.
Though the government has the option of skirting the opposition by getting the GST laws passed as money Bills, but that will also not be of much help as the states, then, will ensure that they don’t get the required support from the assemblies, which is a must for the take off of the GST.
This, clearly, has almost created a dicey situation as the Centre and the states are yet to resolve the dual control issue also – whether it will be based on turnover or a percentage of assesses — after several rounds of consultations, even though the crucial rate framework has been decided.
It will not be surprising to see the states hardening their stance now in the GST council meeting on Friday and Saturday, in which the Central Goods and Services Tax, Integrated Goods and Services Tax and compensation laws have to be finalised.
While the actual gains/losses from demonetisation will take time to manifest, the GST seems to be its first casualty, which is sad, as the GST and digital payments could be a deadly combination in tackling unaccounted income.