M Venkaiah Naidu: GST shows Modi govt isn't shy of big reforms

GST will replace 17 indirect taxes levied by the Centre and the states, and put an end to the cascading effect of multiple taxes. The new system will make many products cheaper

On August 3, Parliament created history with the Rajya Sabha passing the game-changing constitutional amendment Bill on GST to usher in a seamless unified market for the whole country. On August 8, the Lok Sabha also approved the Bill.

This pioneering economic reform is likely to be operationalised by next April and preparations are underway to roll out the scheme by the targeted date. It will ensure a single taxation system, and is perhaps the biggest reform India has undertaken in recent decades. The likelihood of a corruption-free and transparent system is another positive aspect of it.

The idea for an integrated GST was born 16 years ago when the NDA government led by Atal Bihari Vajpayee set up a committee of finance ministers headed by West Bengal's then finance minister, Asim Dasgupta, to make an in-depth study on the feasibility of implementing the tax. Later, a task force headed by the economist Vijay Kelkar also suggested moving towards a comprehensive GST regime.

The empowered committee, headed at different times by different state finance ministers, visited a number of countries for a first-hand understanding of the pros and cons of implementing GST, and held discussions with all the states and various political parties in order to bring them on board.

Prime Minister Narendra Modi had invited Congress President Sonia Gandhi and former Prime Minister Manmohan Singh for consultations in a bid to break the deadlock. Finance Minister Arun Jaitley then addressed certain issues flagged by the two Congress leaders. Although we had the numbers, the government was keen to have an all-round consensus before bringing the crucial bill for passage, as it has long-term implications for the country's economic growth. Some of us held discussions with leaders of almost every political party.

Ultimately, it is for the states to implement the GST rules and this is why the government sought the support of all parties and all states. The bottom line is to have everybody on board. Of course, there have been some hiccups, with some manufacturing states afraid of losing revenue. Finally, Mr Modi's patience and Mr Jaitley's perseverance paid off, and the country is on the verge of having a common market for goods and services.

Once implemented, the GST regime will be a game-changer. It will benefit traders and investors, and provide a huge impetus to the manufacturing sector and the economy as a whole. Ultimately, the consumer will gain. It will improve the ease of doing business by bringing in total transparency and simplifying the indirect tax regime.

Apart from meeting the deadline, the government has a gargantuan task ahead. While taking care of the revenues of the states and the Centre, it will also have to ensure that the GST rates do not hurt the poor. That is a big challenge.

With the Centre keen to implement the new tax regime from April 1, 2017, the response from the states has been positive. Many are willing to ratify the legislation at the earliest, and some have also assured that they will call for special sessions of their legislatures to prevent any delay. Once the legislation is ratified by a majority of the 29 states and receives Presidential assent, the GST Council will draft central and state GST laws to be passed by Parliament and the state Assemblies.

The passage of the amendment bill also sends a signal to the international business community that the NDA government will not shy away from taking up big-ticket reforms to improve the ease of doing business and boost the GDP growth rate, which is expected to increase by 1.5 to two percentage points as a result of the tax. It will provide a common market for the entire country by integrating the economy. With this landmark reform, India will be joining some 160 nations that are already implementing a GST/VAT regime.

The GST will replace 17 indirect taxes levied by the Centre and states, and put an end to the cascading effect of multiple taxes. It will subsume indirect taxes levied by the Centre, such as the central excise duty and service tax, and the states' indirect taxes, such as the VAT. Once this overarching taxation system comes into operation, many products are expected to become cheaper. This, in turn, will boost consumption and lead to higher revenues.

An integrated GST will also bring to an end the current system of inter-state levies through a seamless integrated single market that will make border check-posts a thing of the past. Hassle-free transportation will help cut delays in movement. As a result, the distortions that have crept into the economy due to taxation by different states will be removed. Logistics and inventory costs for companies will come down.

With full input tax credit available, the costs of capital goods are expected to come down by about 10-12 per cent. This, in turn, will reduce tax evasion and enhance tax compliance. With manufacturing set to become more competitive, exports of Indian goods are expected to get a boost. Some reports suggest that India will gain by $15 billion per year with the implementation of GST.

Finally, after a 16-year wait, it will be achhe din for the Indian people, as the standard rate to be fixed by the proposed GST Council is expected to be much lower than the current rates of 20-30 per cent. The GST regime is part of Mr Modi's vision of transforming India into a leading economic power.

The writer is Union minister for information & broadcasting and urban development