An open letter in reply to the finance minister by P Chidambaram

By: |
August 9, 2015 12:26 AM

GST was blocked for nearly seven years by an obdurate BJP.

arun jaitley on MAT reportA file photo of finance minister Arun Jaitley. (Reuters)

Dear finance minister,

When the spoken word fails (in Parliament), the written word takes over in a blog! I welcome the opportunity to respond to the letter posted on your Facebook page.

I am glad you have recalled the origin and history of the idea of GST. I thank you for this gesture because many BJP leaders and MPs believe that all good things began only on May 26, 2014! However, you have blacked out an important chapter of GST’s history. GST was blocked for nearly seven years by an obdurate BJP. The Opposition was led by the finance ministers of Gujarat (Mr Saurabh Patel) and Madhya Pradesh (Mr Raghavji). Neither the erudite Dr Asim Dasgupta (FM, West Bengal) nor the suave Mr Sushil Modi (FM, Bihar), the first and second chair of the Empowered Committee of Finance Ministers, could persuade the two states to give up their unreasoned opposition to an important reform.

Carved on stone

Nevertheless, we reached a stage where the Empowered Committee submitted its recommendations and Mr Pranab Mukherjee introduced a Constitution Amendment Bill. It was a sub-optimal Bill. After I took over as finance minister in August 2012, I resumed the efforts to improve the Bill, but Gujarat and Madhya Pradesh continued to oppose the reform—and were joined by Tamil Nadu. It is therefore wrong to say that the “acceptance” of the Empowered Committee’s recommendations or the “Bill” introduced in 2011 was the last word on the subject or that it reflected the final, considered view of the UPA government or of the Congress party.

As you correctly record, your government continued the negotiations and made certain changes to the Bill. It is the contents of the amended Bill—its strengths and weaknesses—that are being debated now and not the contents of an earlier version as if the earlier version had been carved on stone.

Majoritarian approach

Your letter pointedly refers to the dissent note submitted by three members of the Congress and rebukes them. In fairness, you should have also referred to the dissent notes of Mr A Navaneethakrishnan (AIADMK) and Mr KN Balagopal (CPI-M). From the tenor of your letter, it appears that you do not intend to engage them in further discussion but will try to ride roughshod over the Opposition and push the Bill through the Rajya Sabha. Nothing can be more fatal to the Bill than the majoritarian approach that you plan to adopt. It is sad that your government has not realised the folly of the majoritarian approach even after the fiasco of the ill-conceived ordinance to amend the Land Acquisition, Rehabilitation and Resettlement Act, 2013.

I hope there still is room for debate and persuasion. It is with that hope that I respond to your criticism of the major points in the dissent note of the Congress:

Engage in debate

(1) A ceiling may be fixed for the GST rate in the Constitution: You have conceded that “there may be some rationale in the rate recommended by the Congress party”, but you oppose fixing the rate in the Constitution because it is not “usually” done. Ironically, you have “fixed” a rate of 1% for the additional tax in the same Bill! There is also the example of Article 276 (2) that fixes a ceiling of R2,500 per annum on taxes on professions. So, without resorting to specious arguments, let’s debate the merits of fixing a ceiling—or a floor and a ceiling—for GST which is an indirect tax and therefore regressive and, hence, warrants placing some restrictions on the rate.

(2) The 1% additional levy is trade-distorting and should be dropped. The word “supply” occurring in clauses 9 and 18 should be defined:  The additional levy is a new provision that was not debated earlier. It has been criticised by the Select Committee as “likely to lead to cascading of taxes”. The chief economic adviser had called the additional tax retrograde. So, why not drop the additional levy? If you cannot because you may have made promises to some states, what is the difficulty in defining the word “supply” to keep out intra-firm transfers? You seem to agree on the undesirability of the additional tax, yet you are unwilling to limit the damage that will be caused by it, and I wonder why!

(3) Provide for a Disputes Settlement Authority in the Bill as proposed in 2011:  It is baffling that the Bill assigns the function of dispute settlement to the GST Council in which the disputants will be members! Clause 11 of the proposed Article 279A is woefully inadequate. It stipulates that the GST Council “may decide about the modalities to resolve disputes arising out of its recommendations”. But who will decide the disputes? Who will decide disputes arising not out of the Council’s recommendations but otherwise? Dispute resolution is a judicial function and there must be an independent body that will resolve disputes relating to GST.

The other points of disagreement are less important and, if the major disagreements are resolved, they can be resolved too. The starting point must be abandoning the majoritarian approach and willingness to sit across the table with the principal opposition party that originally proposed the transformational reform.

With regards,

Yours sincerely,

P Chidambaram


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