GST Bill Passage

The government can make it happen; it must make it happen

As the winter session commences, the big question is whether the government will manage to pass the GST Bill in the Upper House. Indian industry needs the bill as it will substantially simplify taxation by subsuming a plethora of taxes. Also it is likely to add 2-2.5% annually to GDP growth. That is huge!

For Modi and his team the GST Bill could be critical for a few key reasons. It will help them re-establish their reformist credentials. It will also enable them to create a model for future reforms. Thirdly, foreign investors and rating agencies are likely to view the passage of the bill positively. But, there are four key imperatives to pass the bill.

Address the issue of peak rates

A major area of dispute is the definition of the rate of peak tax. The Congress wants the peak rate of GST to be defined. They also want to include the GST rate in the Constitutional Amendment so that its sanctity is maintained. Both are actually good ideas as it will ensure that the executive does not get unlimited powers at the expense of the legislature.

No discretion to states

In the existing bill, the states are allowed the discretion to impose 1% tax on goods moving through their states. The opposition wants this tax scrapped. In a way, this 1% state discretionary tax will only add to the complication. It also defeats the core purpose of administrative ease. Also, this becomes an origin tax, whereas GST is actually a destination tax.

Dilute the powers of GST Council

Once the GST Bill is passed, the GST Council consisting of the Finance Minister and the state finance ministers gets full powers. In fact the GST council will have powers to set rates, decide on state of origin, modify procedures etc. Once again, it is a case of giving too much discretion to the executive. That is something the legislature members will be wary of; and rightly so. The powers must be diluted to ensure that there are sufficient checks and balances on the actions of the GST Council.

Take the opposition on board

The biggest challenge for the government is that they need to take the opposition on board. Obviously, after the Bihar elections the opposition will try its best to huddle around the Congress. But there is a limit to which the opposition can actually stall this bill. Remember, this bill is likely to boost India’s GDP growth by 2% annually. No party will want to oppose such a reformist move. The onus is on the Finance Minister to explain his way. The most important thing in a consensus is that every party should believe they are the winner. That is the challenge! ©

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