Dissents in Select Committee on GST Bill
AUGUST 03, 2015
By B N Gururaj, Advocate
THE report of the Select Committee of Rajya Sabha appointed for examining the Constitution (122nd Amendment) Bill 2015 (Referred to as "the GST Bill" for short) is in the public domain. But, it hasn't yet raised as much heat and dust as one would expect.
If one were to read the Select Committee Report which is a 119 pages document, one is struck by the contents of dissenting notes appended by three groups of MPs: of Congress, an AIADK MP and the third individual MP.
Interestingly, the dissent note of the Congress MPs demands all the changes that are required to make the Indian GST, true to its theoretical characteristic.
A. Constitution to fix the ceiling of GST rate at 18%.
B. Bringing tobacco, electricity and alcoholic liquor for human consumption under GST.
C. Doing away with 1% additional tax, which is not available as input tax credit.
D. Defining "supplies" in the amendment bill so as to exclude stock transfers from the scope of taxability.
There are three more recommendations with political overtones:
A. Reduction of the Centre's voting weightage in the GST Council from 1/3rd to 1/4th.
B. Setting up of GST Dispute Settlement Body, in keeping with the legal principle Nemo in propria causa judex, "No man can be judge in his own cause". That the GST council must not also act as an adjudicating body for settling disputes between the Centre and the States and the States inter se.
C. Safeguarding the financial independence of local bodies.
D. Special consideration for very small UT or States such as Goa and Puducherry.
RNR rate of GST: One should recall here that the recommendation of Finance Commission Task Force, in its report submitted in 2009 was in favour of CGST rate of 5% and SGST rate of 7%. Even these very low rates would, according to the report, be Revenue Positive, on account of increase in the tax base, increased compliance, and increased corporate taxes due to reduced tax burden. But, now, the States speak of 27% RNR rate, and even the dissenters, though more benign, recommend a ceiling of 18% tax. But, there is no exhaustive study undertaken subsequent to the 2009 report, to support the demand for higher RNR rates of tax. Evidently, these proposals for higher RNR are not based on any systematic study, but are purely empirical. If the Central Government were to be swayed by this clam our of the States, as consumers, we can expect tough days ahead of us – increased taxes and reduced disposable incomes.
Tobacco and Alcoholic liquor human consumption under GST: This recommendation, though highly desirable is impractical, mainly due to the reluctance of both the Centre and States as far as tobacco products are concerned, and of the States as far as alcoholic liquor is concerned. None wants to bring these under the GST and allow input tax credit. I can't imagine anyone taking input tax credit on alcoholic liquor for human consumption, nor on tobacco products at the final stage. Thus, credit allowed would only be at the intermediate stages. Eventually, at retail stage, entire value addition in the chain would attract both CGST and SGST. At worst, this would result in deferment of tax revenue, but not lead to any loss of tax revenue.
The recommendation to bring alcoholic liquor under GST comes from the opposition parties, which also rule many States. As a citizen, I wonder whether the MPs who have proposed this in their dissent note would advise their party's chief ministers to support GST on liquor?
As far as electricity is concerned, though most inputs and capital goods would suffer GST, no credit would be available as tax on electricity remains untouched by this constitutional amendment. That power generation will continue to remain a huge input cost for the taxpayers under the GST.
Additional tax of 1%: The opposition to this distorting tax is no doubt laudable. Instead of recommending withdrawal of this tax, the dissenting members could have recommended additional tax on demerit goods and services, which are not available as credit. This would have minimized the distorting effect of non-creditable tax across board on all the goods and services. In fact, the Task Force report contains such recommendation in the context of petroleum and alcohol: a GST portion which is available as credit and an Excise portion, which is not available as credit.
Defining the "supplies": Under the CST regime, stock transfers have been a major source of litigation, with the assessing authorities rejecting F forms, or treating stock transfers as constructive sale. Tax on stock transfers would remove this major source of litigation. In any case, the tax so paid would be available as input tax credit. Therefore, exclusion of stock transfers would only perpetuate unproductive litigation and would serve no higher cause.
Political recommendations of the dissenters: The proposal of the dissenters to increase the weightage of States vote in the GST council to 75% does not make good sense. Any proposal by the Central Government can be perennially defeated by the States in the GST council. When it comes to fiscal responsibility, few if any, States in our country have exhibited fiscal responsibility. Most of the States pander to populism and borrow heavily. Relatively, the central government conducts itself more responsibly, though profligacy by the Centre is not unknown. If the State's votes carry 75% weightage, the States may act impudently for meeting a short term and short sighted goals, and self-destruct the GST system itself.
The opposition to the GST council itself acting as dispute settlement body is also not well founded. In fact such a dispute settlement mechanism has been working in the World Trade Organization now for almost two decades. All the members of the WTO constitute the Dispute Settlement Body, though a select few members from amongst them actually hear and decide the disputes raised by the Member States. GST Council can also adopt a similar device for dispute settlement: A committee of States who are not parties to the dispute may hear the disputants and submit a report to the GST Council for adaptation. Constituting another DSB would merely delay the decisions and with its attendant problems.
Safeguarding the financial autonomy of the local bodies is no doubt very important. Though we pay huge amount of taxes, very little of what we pay to the Central Government touches our day to day lives. On the other hand, the work done by the local bodies is a part and parcel of our day to day lives. But, they work with the least revenue and financial autonomy. The blame for this paradox has to be laid at the door step of the States, who refuse to share their revenue with the local bodies based on the State Finance Commission recommendations. With the Central Government steadily distancing itself from the centrally sponsored schemes, there is not much that the Central Government can do to save the financial independence of the local bodies.
The GST Bill already has provisions to address the needs of States which are deficit in resources and are small. J & K, Himachal Pradesh, Sikkim, Arunachal Pradesh and few more States have been identified for this purpose. Thus, it is a matter of adding two more names to this list of privileged States.
Real estate sector under GST: The definition of "Service" in clause (26A) of article 366 treats all transactions other than sale or purchase of goods as service. This sweeping definition will no doubt bring real estate sector also under the sway of GST. There is no whisper about subsuming stamp duties and registration fees under GST. Thus, the Real Estate Sector will be burdened by one more tax, thereby encouraging more evasion of tax.
Is it GST Council versus Parliament?: The dissent of the AIADMK raises one interesting point. Though not well articulated, it seems to suggest that if the powers are vested in the GST council as per Article 279A, to that extent, the Parliament would have abdicated its power to impose indirect taxes, in favour of the GST Council, with parliament being reduced to a mere approving authority. Since the Select Committee has rejected this concern, now it does not matter. However, it is not necessary to think that the Parliament denies itself the power to impose indirect taxes. On the other hand, the GST council may be considered as a body analogous to the parliamentary select committee, whose recommendations are generally accepted by the Houses.
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Considering the political myopia now prevailing in the Upper House, it is still doubtful, whether GST Bill will go through the Upper House or will languish until NDA government musters requisite numbers. In any case, if the Constitutional amendment goes through in its present form, we are in for some heavy tax burden.
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