GST needs to be deferred, says Amit Mitra

Compensation to be paid to the states was likely to shoot up in the wake of note ban: West Bengal FM

Amit Mitra, chairman of the Empowered Committee of Ministers on GST, said the Goods and Services Tax (GST) needs to be deferred so the economy is not hit by another disruption after demonetisation kicked in unexpectedly.

In an interview with Karan Thapar on India Today, Mitra said the compensation to be paid to the states was likely to shoot up in the wake of demonetisation making its implementation unfeasible at the moment.

During the course of the previous meetings between several state finance ministers on GST, Mitra said there was consensus that ~55,000 crore would be needed to compensate the states for the revenue loss arising from adopting the GST regime. However, states, which could post a 14% growth, were not to be compensated from the fund.

But with demonetisation, state taxes collected would sharply decline, Mitra said, adding, “That would mean the compensation to the states, who could have made 14% growth in revenue, is going to fall below the 14%, which means, by constitutional amendment, they will also have to be compensated.” The West Bengal finance minister said ~1 lakh crore would most likely be needed to compensate the states.

Since the compensatory fund consists of taxes from sales of luxury cars, aerated drinks, tobacco and other commodities, from where tax collection is likely to decline in wake of demonetisation, the fund itself will come under stress, he explained.

“While the compensation sources are falling, your need for compensation is steeply rising,” he said, questioning if the country’s populace was ready to take another “destabilisation of the economy by another hit called GST”.

Mitra took a swipe at Urjit Patel, saying, the Reserve Bank of India (RBI) governor seemed to have “lost his way”.

Every state, like the Centre, under the GST regime will have to do away with various tax collection departments, which will result in disruption of an enormous scale, he said. “The whole tax architecture will have to change, which is a huge challenge in the form of destabilisation. Can we not move GST a little bit on so that when the economy stabilises (and) people come back to normal living conditions, you bring in another disruption,” he asked.

Criticising Prime Minister Narendra Modi for bringing in a sudden economic disruption in the form of demonetisation, Mitra said, the PM was gradually changing the narrative for the disruption from referring to eradicating black money to Digital India.

According to Mitra, in the best case scenario, India’s gross domestic product (GDP) was likely to be hit by 2%, implying a scaling down from 7.5% to 5.5%, while in the worst-case scenario, GDP was likely to fall by 3.2% from the current 7.5%.

West Bengal is likely to lose Rs 5,000-6,000 crore as tax collection on account of demonetisation.