Former finance minister P Chidambaram — who first announced plans in his 2006-07 budget speech to shift to a new indirect tax regime — has said there is a still a long way to go before the unified goods and service tax (GST) becomes a reality on the ground. Excerpts.
How real is the risk that the government will bring in subordinate GST legislations as money bills?
I wouldn’t want to question their intentions at this stage. They have a majority in the Lok Sabha. Presumably, with friends and allies, they also have a simple majority in the Rajya Sabha. So if they want a genuine debate, they should bring these as financial Bills.
Do you still have any political bargaining power left on the issue?
Let the Bills come and we will tell you what bargaining power we have. If they are brought as financial Bills we would debate and vote on them. There is a known provision in the Constitution that requires them to bring a Bill as a money bill. If he wants to bring a Bill as a money bill, to be certified as a money bill, then he can ask the Speaker to certify it as a money bill. Even if he brings a bill without seeking the speaker’s certificate, it will go through as a money bill. I am not denying that Tax changes are brought as money bill. What I’m saying is that GST Bills are too far reaching, too transformational, too important as laws to be brought as money bills to avoid a discussion and vote in the Rajya Sabha.
So, what is the road ahead?
It’s a complicated exercise. The approach should be of conciliation and negotiation. I hope they continue on the path they took in the last two weeks.
You want the standard GST rate capped at 18%. Why?
I have reflected the report of the committee headed by the chief economic adviser. It’s based on sound economic facts and logic. The committee members included officers from Tamil Nadu, Kerala, Gujarat, Karnataka and the Centre’s department of revenue. The government hasn’t rejected the report. So why should I not accept it?
How confident are you about the April 1, 2017 deadline being met for GST’s rollout?
Much of these clauses were drafted when I was the minister. There is a lot of work to be done; many milestones to be crossed. I would be pleasantly surprised if they can cross all these in three months. Two laws have to be passed by Parliament. One law modeled on the model GST law has to be passed by 29 state governments. The GST Council has to be established. The Council has to establish a dispute resolution mechanism. The Council has to agree on the rates and recommend the rates to the Union government and the state governments. Then the governments must make up their minds about what rates will find a place in the Bills. On the administrative side, the GSTN network has to be fully established. Once it’s ready, it has to be tested in live intra-state transactions and live inter-state trade in goods and services and live trade in goods and services during the course of import.
There is a fear that GST will make services costlier?
Even if you fix it at the standard rate of 18%, it is an increase of three percentage points over the current level of 15% of service tax. On products, it depends on how many people register, how many transactions are captured in the GSTN. It is work in progress. There will be glitches, there will be difficulties. One should not lose heart. One should persevere.
How does one convince states that have demanded a higher cap?
That is the finance minister’s burden. He has to convince them that exemptions will be limited, efficiency will be enhanced and tax evasion will be considerably lower. A lower standard rate will ensure their revenues are protected. The CEA has calculated the revenue neutral rate as 15-15.5%. Unless you demolish that calculation, why do you say at 18% you will lose revenue?