A K Bhattacharya: Time to arrest the GST slide

That the tax reform fell prey to demonetisation is beyond dispute

It is arguably the biggest irony in India today. The goods and services tax (GST), hailed as a game-changing reform, is getting scuttled by a rare coalition of Opposition political forces whose unity on this issue has been indisputably triggered by the government’s disruptive move on demonetisation. Yet few tears are being shed over the imminent postponement of the launch of GST.

The uncomfortable fact that most government representatives would refuse to recognise is that GST’s roll-out from April, which was almost certain before November 8, will rank as one of the biggest casualties of demonetisation. Why demonetisation could not be postponed by just a couple of weeks to allow the passage of the three GST bills in the winter session of Parliament will be debated for long, but that the country’s long-awaited biggest indirect taxes reform has fallen prey to demonetisation is beyond dispute.

What should Finance Minister Arun Jaitley do under the current circumstances? His first move should be not to lose the perception battle. You ask any political leader of the ruling party or that of the Opposition, everyone seems to be reconciled to the fate of a postponed launch of GST. It is here that Jaitley must be seen as not having lost hope and resolve to stick to his original target of rolling out GST from April 2017. If consensus can be reached on the key rates and jurisdictional issues before the Budget session of Parliament starts on January 31, there is still a possibility of sticking to the April 1 deadline. 

The danger is that if North Block, headquarters of the finance ministry, already starts preparing for a roll-out of the new indirect tax regime from, say, September or July, the possibility of breaching even the September target cannot be ruled out. There are those who believe that GST has to be in any case rolled out by September 16, since that is when the one-year time given in the gazette notification on amending the Constitution expires. 

One should not underestimate the power of India’s innovative politicians, who are capable of coming up with some new idea to get an extension to the one-year deadline by when GST is to be rolled out. Don’t forget that for the sake of politics and electoral expedience India’s parliamentarians had once agreed to pass a full Budget without discussion, even after an elected government had lost its majority in the Lower House. Extending the September 16 deadline would be a relatively smaller challenge to overcome. 

Why should every effort be made to take all possible steps for rolling out GST by April? The situation after March 11 could be full of political uncertainties. The results of the five Assembly elections would be out and the political temperature would be much higher than it is now. It is safer to settle the GST debate and its schedule before that day of election results so that nobody can reopen the GST issue all over again.

Jaitley must consider initiating three additional steps. One, he must reach out to the states and their finance ministers to explain to them the new revenue dynamics. The current tax revenue buoyancy augurs well for the states, as they are the ones to gain the most from higher tax collections. The revenue loss they fear is exaggerated and the finance minister must communicate that message to the states effectively and convincingly, assuring them that they would be compensated for whatever losses they incur.

Two, Jaitley must convince the top leadership in the Bharatiya Janata Party that having made so much effort in the last year and a half to have got the Constitution amended to usher in GST, it would be imprudent not to use more political capital now to give the final push to meet the pre-determined target of introducing the new tax regime from April 1. It will be a good idea if Jaitley decided to use Prime Minister Narendra Modi to convince his own party that an early GST will go a long way in achieving the goals of moving to a less-cash economy. 

Finally, Jaitley should avoid making any changes in the rates of excise duty and service tax on products and services in the Budget that he would present on February 1. By not making such changes he would be putting the necessary extra pressure on the political system to agree to an early roll-out of GST. The three GST bills should ideally be introduced on the same day when the Budget is presented, so that all of them could be passed at the same time. The nation then need not abandon all hopes of seeing the roll-out of GST from April 1.