‘Most Political Parties Now Support GST’

In the run-up to the monsoon session of Parliament, the Modi government is confident of seeing the GST Bill through this time. Amid preparations for the upcoming reform, minister of state for finance Jayant Sinha took time off his busy schedule to speak to BW Businessworld’s Suman K. Jha about the importance of GST, the concerns of various stakeholders, as well as the Bill itself.

Excerpts:

Is it true that GST overrides all issues before your ministry these days?
The Goods and Services Tax (GST) is important for the continued growth of the country and to send a very strong reform signal to the rest of the world. Most economists believe that by implementing GST, we can materially accelerate the GDP growth rate — from 0.5 per cent to up to 1.5 per cent annually. The economic impact would be very substantial.

Moreover, the benefits for consumers and businesses will be substantial. Consumers will see lower prices, as costs come down in the economy and cascading taxes stop. Businesses will benefit a great deal because their cost structure will improve. Time delays and logistics hassles that they have right now will diminish as well, because there will essentially be a seamless market throughout the country.

The government will also benefit, because our tax base will widen because the way GST is set up ensures that everybody keeps track of their invoices and everybody goes after the credit stream that comes from GST.

So, if you look at all the different stakeholders — whether it’s the consumers, businesses and the government, everyone benefits from GST and the GDP rate is accelerated.

With that in mind, if we can pursue and implement GST and make it happen by April 1, 2017, India’s relative economic position, which is already very strong around the world, will become even stronger. We will get this tremendous impetus from this major economic reform propelling us forward.

This in a world dealing with a lot of volatility because of Brexit, challenges from the Middle East, slow global growth. India is being propelled forward by its economic policies and the implementation of massive economic reforms like GST. India will, thus, truly stand out as a haven of stability and growth.

Are you confident of the Constitution Amendment Bill being passed in the monsoon session, and a rollout of GST from 1 April 2017?
I am very hopeful that we will be able to get the Bill passed in the Monsoon session. As per our calculations, most parties are now in support of GST and therefore, the numbers seem to be in our favour. But till Parliament is convened and we start to have the debate around GST, it’s too hard to tell exactly which way the numbers will pan out, but we are hopeful.

The Congress is bent on the 18 per cent rate cap being mentioned in the Constitution. How will you counter that?
Our hope is that we will be able to persuade the Congress that putting an 18 per cent rate cap in the Constitution is not good governance. We do hope to have a national consensus in favour of GST, so that this piece of economic legislation, which really is in some ways, the most radical reform of taxation since Independence, is passed with the support of all parties, because it affects all citizens, all states and so on. We will try persuading our friends in the Congress that it’s better to have a GST rate in the Bill, than in the Constitution.

There’s a theory — a conspiracy theory — that since GST will push up inflation, the Congress wants GST closer to elections, so that you bear the brunt of the price rise in the general elections…
We are trying to ensure that this important economic legislation is passed.

How do you propose to address concerns expressed by manufacturing states like Tamil Nadu?
Every state will benefit. They will benefit because we’ve guaranteed five years’ of compensation if their tax revenues fall short. Therefore, no state needs to worry about its tax revenues. After five years, the tax base would grow — the economy would grow. So, as we move forward, every state will find that its taxes have grown substantially.

Including that of the manufacturing states?
Yes, including manufacturing states because most of the manufacturing states are large consuming states. Services taxes will be included in the GST.

There are concerns around the model GST law which you have put out in public domain. For instance, it is silent on some issues, like area-based incentives for states like Uttarakhand, Himachal Pradesh, J&K. What do you have to say?
We have put out the contents of the GST Bill so that it can benefit from public consultations and public comments. Feedback and inputs are welcome.

On the Revenue Neutral Rate, there’s a wide variation — the CEA suggests a revenue-neutral rate of 15-15.5 per cent, while the NIPFP has proposed 27 per cent. While the empowered committee will deliberate upon it, don’t you think a higher rate will push up inflation?
We have to see what the GST Council decides. Of course, we have been saying all along that it is important to bring as many goods and services within the domain of the single tax because that will ensure the lowest possible rate for GST. Important decisions will have to be around precious commodities like gold, silver, jewelry, etc. We’ve introduced an one per cent excise tax for gold this time. As you have seen from the CEA’s report, having more with respect to coverage of these commodities will ensure a lower rate of GST.

I have been talking to various state finance ministers. The Telangana finance minister says that when Central Sales Tax (CST) was introduced in 2002, the Centre had promised to compensate states for the revenue loss they would incur on account of the new tax regime. However, successive governments at the Centre have failed to keep the promise. The Centre still owes over Rs 600 crore in CST arrears to Telangana. The state, along with Andhra, wants the Centre to clear the CST arrears before implementing GST.

This was a problem which we’d inherited when we came to power. We found that there were significant liabilities to the states from the collection of various taxes. As the finance minister has said, we are working to pay off those arrears over a period of time. We made some payments in the last fiscal year, we are making some this fiscal year, and we hope to pay off these arrears.

Are you saying that all arrears will be paid to the states before GST comes into effect?
We are working to reduce it as much as possible, given our fiscal targets.

Not too many governments that ushered in GST around the world, were re-elected. Will your government buck this trend?
Let’s bring in GST, then we will see.

suman@businessworld.in