TIOL - COB(WEB) - 201
AUGUST 19, 2010

By Shailendra Kumar, Editor

CONTRARY to the Centre's optimism that the second draft of the Constitutional Amendment Bill for introducing GST would have been a smooth sailing at the Empowered Committee's meeting yesterday, the BJP-led obstinate opposition has created a piquant situation for the Union Finance Minister, Mr Pranab Mukherjee. Although Finance Ministers of BJP-led States tried hard to convince the Centre that there was nothing political about their stand but the stark reality is that the narrow politics has finally created a stone wall against the much-needed indirect tax reforms in India. Though it was a part of BJP's electoral manifesto to introduce GST with 14% tax rate, but its actions appear to be nailing its lies. As many as 19 States attended yesterday's meeting of the Empowered Committee but six BJP-ruled States, DMK and Bahenji-ruled Uttar Pradesh strongly opposed the introduction of GST from April 1, 2011. Other 11 - largely Congress-ruled States along with Orissa and Kerala - were in favour of presenting the Draft Bill in the Parliament in the current session. If we take all the States, going by their known stands on GST, about a dozen are in opposition, and the rest in favour. Such a sharp rift within the EC has led to the rejection of the Draft Bill.

While addressing the gathering at the EC's meet the Union Finance Minister made fervent appeal to all the States to approve the Draft Bill and also promised to take care of some of their minor concerns like subsumation of entry tax and entertainment tax which are collected by the local bodies, in the third revised draft bill but the States have not shown any willingness to approve the Centre's decision to move the Draft Bill in the current Session. Later in the day all the Members of the EC met the Finance Minister again where Mr Mukherjee made a passionate appeal to the opposition to reconsider their decision but the FM's appeal prima facie does not seem to have cut much ice.

The opposing States' key objection is the dilution of their autonomy and also an unexplained caution against the hurried moves. Their demand is that the GST rates, the exemption threshold and the exemption lists should first be finalised before the Constitution is amended. They also protested against the Centre coming out with a roadmap of GST rates which would consummate at 8% over a period of three years. They wanted the Centre to talk about GST rates only after a consensus was achieved - this seems to be a valid criticism by States as talking about rates was a little premature move.

But, strangely, States have come up with a new concept of FLOOR RATE and a BAND RATE. In other words, they want certain floor rates of GST which means no State can go below that rate. And for the Band Rate, they articulated that they should have the flexibility to increase the rates by one or two per cent as and when they want. It seems a large number of States are in favour of retaining some shade of autonomy. Even Orissa which supported the Draft Bill, expressed its support for the 'Theory of Band Rate'. Some of even Congress-ruled States also favoured the band rate theory!

On his part the Union Finance Minister is learnt to have impressed the gathering that the first step in the right direction would be to evolve a consensus on the Constitutional Amendment Bill, and the talks for ironing out other issues may continue as parallel exercise. His logic is that even if the Draft Bill is tabled, it is not final as it would be referred to the Standing Committee which would continue to interact with the EC and the States. That means States will have more opportunities to amend the wordings in the Bill till the time the same is finalised and tabled in the House during Winter Session. The FM also believes that if the Draft Bill does not go through the House, all other exercise of finalising the GST rates, threshold limit and exemption lists etc would be an exercise in futility.

True, it is a sound thinking on part of Mr Mukherjee. Till the time the Standing Committee gives its final report, all the stake-holders will have a chance to influence the draft bill. Then States also need to remember that merely having the Constitution amended does not mean anything unless follow-up steps are taken. It may be recalled that the Constitution was amended for vesting fiscal power in States for collection of Service Tax but the same was never notified. In other words, having an enabling provision would only facilitate finalising other items on the agenda and does mean that the States would be losing their power to collect VAT. However, the States' other concerns relating to Dispute Settlement Authority etc needs to be paid due attention before it is incorporated in the Bill.

If Netizens go by what Mr Asim Dasgupta said yesterday - a new term has been coined by the States - not consensus but 'consent'! What he probably meant was that the consensus to finalise most the GST agenda items would not do - it has to be consented by each State. If that is going to be the scenario then the EC unfortunately fails as a collective body. There is no need for a forum like EC. The Centre can constitute a Task Force which can meet heads of each State and collect their 'consents' for GST rates and exemptions. The raison de'tre for the EC would disappear and Mr Dasgupta will have no role to play in the making of the history.

Anyway, it is now to be seen what would be the Centre's response to the overall scenario emerging out of the yesterday's meet. The clock of history does not wait for anybody. It has been ticking fast and inching towards the end of the current session of the Parliament. Whether Mr Mukherjee would take the call to go ahead with the Draft Bill as he has the support of more than 60 per cent of the States and let the opposing States voice their concern before the Standing Committee or to let down the Nation which was promised introduction of GST as far back as 2006. Four years have gone past but our States do not seem to be guided either by the clock or by the calendar. Even the CST phase-out is stuck half-way, and undue pressure being mounted on the Centre to dole out continuous compensation. States have failed even here by delaying the hike in the VAT rates so that CST could be bundled out. As per the roadmap it was scheduled to be zero rate by 2010 but it appears the Indian economy will have to put up with CST for one or two more years. Let's hope the Centre and sane elements among the States achieve what they have committed to the Nation within the period of mandate given to them. For the Centre, three more years are there to go but time flies and political upheavals do come if the wheels of history are stopped by the bogey of artificial roadblocks. Let's hope sanity prevails in both the camps so that the unavoidable reforms are not held up.