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Demonetisation shadow on GST, Oppn threatens to hold up tax reform

The government’s demonetisation decision which united the Opposition and washed out the winter session of Parliament could cast a shadow over the goods and services tax (GST) as well.

india Updated: Jan 02, 2017 14:29 IST
Saubhadra Chatterji and Suchetana Ray
Union finance minister Arun Jaitley chairs a meeting of the Goods and Services Tax (GST) Council in New Delhi.
Union finance minister Arun Jaitley chairs a meeting of the Goods and Services Tax (GST) Council in New Delhi.(PTI File)

The government’s demonetisation decision which united the Opposition and washed out the winter session of Parliament could cast a shadow over the goods and services tax (GST) as well.

With a meeting of the GST council due in two days, opposition parties are in touch with each other to put up a united front against the country’s biggest tax reform and pressure the Modi government into accepting their two key demands.

“West Bengal finance minister Amit Mitra is speaking to us four times in a day. We are in touch with other opposition parties. Unless the issues are resolved, the GST can’t be allowed,” Congress leader Jairam Ramesh told Hindustan Times.

The issues that Ramesh talked about were the differences between the states and the Centre over “dual control” to divide assessing powers — basically who will tax what.

Read | GST and digitised economies are the future of India: Jaitley

Compensation to be paid to the states for revenue losses is the other sticking point and demonetisation has only made it more complicated.

GST aims to create a unified national market by replacing string of local levies with a single tax.

Finance minister Arun Jaitley-headed GST council, which has state finance ministers as its member, is meeting again on January 3 and 4 to hammer out the differences.

Several states such as West Bengal want control over all businesses with an annual turnover of 1.5 crore and less.

Several states also want full control over interstate movement of goods and services.

Mitra, who is the chairman of the empowered committee of state finance ministers, on December 23 said states could suffer revenue loss of 20-30% in the third and fourth quarter of this financial year. The annual compensation math needed to be reworked.

Mitra’s party the Trinamool Congress has been at the forefront of the opposition to the currency recall.

The government should have concentrated on the GST bill but it wasted two months pushing demonetisation, CPI (M) Politburo member Mohd Salim said. “Prime Minister has not yet revealed the impact of the note ban. How can states take a decision if they don’t even know the impact on their revenue,” he said.

Read | A delay in the rollout of the GST could be a blessing in disguise

The Congress, which drafted the original GST bill, was of the view that even after the 50-day deadline sought by Prime Minister Narendra Modi, the situation was far from normal and cash crunch continued, sources said.

As long as the turmoil persists, the Congress would not allow the three bills that will launch the new tax regime to be passed.

While the ruling NDA has a brute majority in the Lok Sabha, it doesn’t have the numbers in the Rajya Sabha.

The government and the Opposition have fought bitterly over demonetisation, with the rivals accusing Modi of helming the “biggest scam in the country” and unleashing financial anarchy.

Read | Demonetisation, GST to transform India, NPAs key risk: RBI

The Opposition-sponsored disruptions during the recently concluded winter session didn’t offer a chance to the two sides to find common ground on GST.

“Is the government serious about GST? Please remember that in the winter session, they didn’t even bring the bill to the House,” former finance minister P Chidambaram told a press conference last week.

The Congress has now linked the alleged financial mismanagement of the demonetisation with their support for the GST.

“There is a bigger issue before the country,” said Ramesh, a reference to demonetisation and its bumpy implementation.

Also read | What to expect from Union Budget 2017