Congress deputy leader in the Lok Sabha Captain Amarinder Singh has created ripples in political circles by going against his party line to hail the goods and service (GST) bill, saying Punjab would suffer the most by stalling of the bill in Parliament. Punjab finance minister Parminder Singh Dhindsa, however, does not seem to share the former CM's optimism.
Dhindsa, who has flagged the revenue loss to the state on account on taxes and fees which will be subsumed by the GST, says though Punjab need not worry for the first five years as the Government of India has agreed to compensate states for revenue loss, it is too early to cheer about the gains.
"Our taxes on foodgrains total up to 12%. How will we cover up the revenue loss after five years? Secondly, the revenue neutral rate --- the rate at which the new GST will deliver the same revenue as last order --- has not been finalised. The Congress is demanding this rate not be higher than 18%. But the panel working it out has proposed it should be over 25%. So a lot will depend on what will be the revenue neutral rate. Thirdly, there is still no clarity on how will the service tax be collected and distributed," Dhindsa told HT.
The finance minister claimed the GST's success is also based on some assumptions such as higher growth rate and lower tax leakages. "But to what extent will it be able to plug tax leakages will have to be seen. The growth rate of country's economy is expected to jump by 2% after its introduction and benefit trade and industry. So, Punjab is supporting GST, as it's a good tax reform, but we do not know how it will reflect on our state's finances. All that we can say as of now is that we do not need to worry about the revenue loss for the next five years as the Centre will compensate us taking average growth rate in taxes of last five years into account. But It would not be right to comment on the revenue gain as the picture is too hazy as of now," he added.
Former Punjab FM Manpreet Singh Badal, who, too, had highlighted Punjab's revenue loss to then Union finance minister Pranab Mukherjee, says being a high consumption state, Punjab stands to gain from the uniform tax reform. "The value added tax (VAT) was loaded in favour of producing states like Haryana and Gujarat. They are now crying hoarse over introduction of GST as the benefit from the new tax regime will go to consuming states and Punjab ranks high on that index. An internal exercise in the finance department done during my stint too showed we would gain from GST," he said.
Citing the example he had highlighted as FM during his speech in the Punjab assembly on how McDonald's in Ludhiana was paying more taxes than the entire food and beverage industry of the city, Manpreet said GST will plug tax leakages and ensure better compliance. "Our tax department is rattled by corruption. How many traders make bills for their sales? The entire NRI remittances coming to Punjab are going into consumption of gadgets, cars and electronics. There is little that Punjab is producing other than foodgrains to fear revenue loss from GST. That, too, will be compensated for five years. Overall, it will boost the economic growth and I am bullish and happy about it," Manpreet Badal said.
He also brushed aside the Congress' objections to the bill, saying the latter wants the BJP to feel the pain of washout of a session like it had felt when in power. "They will eventually pass the bill as it was authored by the Congress and is in the interest of the country," he said.
Amarinder, in a press statement on Friday, had expressed displeasure over stalling of the bill, saying a uniform tax structure would have helped the cash-strapped state which is struggling to pay salaries and service its huge debt as well as its trade and industry which is fast winding up. Union minister Harsimrat Kaur Badal had taken a dig at Amarinder's statement questioning why he didn't attend the monsoon session of Parlaiment to support the bill and advice the Gandhis (Congress president and vice-president) who are blocking the passage of the bill.