Before anybody gets a different idea, let?s be clear that bringing petroleum products under the planned Goods and Services Tax (GST) will not cut their prices for you and me. But leaving that piece of bad news aside, the proposal sent by states to the Parliamentary Standing Committee on Finance is one of the best pieces of news from the GST corner we have heard for quite some time.
For the successor to finance minister Pranab Mukherjee, getting down to make GST a reality will possibly be the best healing dose for the economy that?s been buffeted around quite a bit. Those who would say it requires political adroitness and a huge number of negotiations forget that the UPA government has done the same and more for too many other things and yet seen them come unstuck in the past couple of years. For instance, despite some of the good noises being made by the Congress chief ministers, the plan for FDI in multi-brand retail will likely take time. There are far too many moving parts in it. That same degree of effort spent on GST, one suspects, might be more productive.
The GST plan does not contain the dreaded FDI word and so does not get banished from sight at once. Two, negotiations on the plan hinge around the old Centre-state acerbity over funds, on which generations of bureaucrats and ministers have honed themselves. Three, states are agreed that it will benefit them and the Centre knows it is good news, but for the past few years there has been no ownership of the project to drive it. Why should a state commit itself to the regimen if it finds the central government too distracted by other issues to pay any real attention?
Lack of ownership has certainly become evident in the way the finance ministry has handled the GST project. There are any number of examples of this from past and present officials in the ministry, but the most telling is the shortage of personnel deployed by the revenue department. So, today, if there is a miracle and states jump on the GST bandwagon after having resolved their problems, there will be an embarrassing delay in finding the right number of qualified people to fill up the details in legislation and so on. The problem is also intense at the state levels but then since the lead has to come from the Centre it will be more pronounced here. At the ministerial level, the lack of ownership is more telling. The finance minister has attended all the meetings but has made little effort to hammer out a consensus. His officers, too, haven?t covered themselves in glory in this respect. So, of late, all the meetings have been a compendium of speeches by the various state leaders spouting the same line of thought. Yet ownership is the gelatin for the success of any project on such a massive scale.
All the major reforms envisaged in this round of economic management of the country hinge on the success of the GST. FDI in retail, for instance, will hardly get any serious players interested if they have no clue about the countrywide taxation plan.
But, as the consensus to bring petroleum products under GST shows, if the states put their head to it, some of the most intractable problems in the run-up to GST can be solved. While the final report is not released yet, the broad contours say there will be a GST levied at the Centre and then the states on petroleum products at rates possibly higher than the current rates. In addition, there will be a central excise duty. So, the tax rates on the products could climb. Yet, as more states adopt the GST model, the impact of the fuel on the inputs and outputs will be measurable. Even if the states notionally levy the tax and then develop some means to reimburse those who need to be subsidised, it will not impact the integrity of information in the network. This will provide highly useful statistics for the economy.
Yet, what is the timeline for the introduction of GST that we can conceivably count on, from here? There are three clear steps that need to be taken. First, the Centre has to push a constitutional amendment Bill through Parliament that will also need to be ratified by a majority of the states. This Bill will allow the Centre to tax consumers; currently, it can tax only producers, as with the excise duty. The Bill will also include a provision to allow states to tax services. That, too, is not provided for in the constitutional division of taxation powers.
The second step will be to pass a GST Act through the Centre and each state. This is the most difficult as it will also involve setting up a common mechanism to settle tax disputes. There are two types of disputes possible: between the state and the citizens and between the states and the Centre. The trickier step is to define a mechanism for the latter. This is where the role of the finance minister in soothing ruffled feathers emerges. Pranab Mukherjee has not found the time to get into this subject, including decisions on who will populate the adjudicating body and their qualifications etc. India has to devise her own mechanism in this context as there are no parallels from anywhere in the world. In countries like Canada, for instance, they do not allow states and the Centre to tax the same good and so avoid a large cause of disputes. The Indian finance ministers will, therefore, have to come up with their own solutions. Also, since the states have a widely varying administrative capacity, it is distinctly possible many of them will adopt the model GST Bill written by the Centre. Avoiding a clash between its provisions and those written by the major states will be a tough call for the empowered ministers.
The final step in this journey is to set up the information technology backbone or the GSTN framework to work as the national switch. The tenders for setting up the body are expected to be released soon. The selection and setting up of the body will take about a year at the very least. Issues like compensation can be settled meanwhile. A 2014 timeline, then, looks like a very conservative estimate this June.
subhomoy.bhattacharjee@expressindia.com
