Reference to current rates of 30% misleading: P Chidambaram

Interview with Former Union finance minister

Former finance minister (FM) P Chidambaram, who proposed the Goods and Services Tax (GST) for the first time in his Budget speech for 2006-07, tells Indivjal Dhasmana that FM Arun Jaitley is not mandatorily required to bring subsequent GST Bills in Parliament as money Bills. The Rajya Sabha does not have the power to make changes in the money Bill. Edited excerpts:

Is it obligatory for the finance minister to introduce GST Bills as money Bills? Article 110 of the Constitution says a Bill shall be deemed to be a money Bill if it satisfies certain conditions.

There is no obligation for the government to introduce a Bill as a money Bill or seek a certificate from the Speaker that the Bill is a money Bill. Article 110 of the Constitution defines a money Bill. Article 117 defines a financial Bill. There is no provision in the Constitution that obliges the government to bring forward a Bill as a money Bill. The GST Bills can be introduced as financial Bills.

Why are you insistent on 18 per cent cap for GST rates? The finance minister says rates on goods go up to 30 per cent, if states’ value-added tax, local levies, central excise tax, cess and surcharges are included. A gap between 18 per cent and 30 per cent is huge. Isn’t it?

GST is an indirect tax. Indirect taxes are regressive. Both rich and the poor pay the same amount as tax. Hence, the world over, indirect taxes are kept as low as possible. As far as GST is concerned, the average for high income countries is 16.8 per cent. The average for emerging market economies is 14.1 per cent.

The CEA’s (Chief Economic Advisor Arvind Subramanian) committee has worked out the revenue neutral rate (RNR) as 15-15.5 per cent. That means, if the RNR is applied to all goods and services, the states as a whole will not lose the revenues they are collecting now.

Based on the RNR, and after factoring in relevant matters, the CEA’s committee has clearly recommended that the standard rate of GST should be 18 per cent. He has also emphasised that a standard rate above 18 per cent would be inflationary. The Congress believes there is a need for someone to speak up for the people, which is the third side of the triangle, the other two sides being the Union government and the states.

The reference to current rates of 30 per cent is misleading. That rate applies only to a few goods or services. Besides, currently there are too many rebates and exemptions. We are looking at a tax regime that will apply to all goods and services with very few exemptions and practically no rebates. RNR, by definition, is a revenue neutral rate and the states as a whole will not lose any revenue.

The Congress is simply reflecting the well-researched and well-argued conclusions of the CEA’s report.

Some state finance ministers have criticised the Constitution amendment Bill because it was changed in the Rajya Sabha to say that the unclaimed amount in IGST (integrated GST Bill) would not be distributed among states. How do you see it?

I am not familiar with the discussions between the Centre and the states with reference to this clause. If a promise had been made, it should be honoured.