Will the Government grab the opportunity and implement a perfect GST?


6th July, 2015 : The GST Bill i.e. "The Constitution (122nd Amendment) Bill, 2014” was passed by Lok Sabha on May 06, 2015. However, at the insistence of the opposition in the Rajya Sabha particularly the Congress, the Bill was sent to its Select Committee on May 14, 2015.

Reportedly, the Congress members in the Select Committee have raised certain demands to be incorporated in the proposed GST Bill. These demands when viewed independently of politics, are positive recommendations which economists, industry, trade and most of all consumers will  welcome. The Congress demands are :

1.    GST should be comprehensive and should include  alcohol, tobacco and electricity. GST should include petroleum products right from the 1st year itself instead of continuing with other options which may spread over a five year period.

2.    The additional tax  @ 1% on inter State sale which is scheduled for a period of two years should be dropped.  This additional 1% tax was recommended by TN, Gujarat and West Bengal

3.    Revenue Neutral Rate to be kept at 18% instead of 27% but with 100% compensation for losses in revenue to States

4.    The compensation formula for the States should be specified.

5.    Dispute settlement provision in the bill.

Apparently, Congress has smartly pressed these positive demands knowing it will be difficult to summarily brush them aside.  The GST proposed in the Bill is actually a compromise formula which inter alia excludes petroleum and electricity which are integral to every industrial and  business activity. Petroleum products contribute nearly 1/3rd of all indirect taxes collected both by the Centre and States. So excluding petroleum products really means, the GST will be severely truncated and at best be called a 2/3rd GST.

So when a demand is made to expand the scope of GST to comprehensively include petroleum from the 1st year itself and also alcohol,  tobacco and electricity, it would be music to the industry’s ears.  If one proposes a comprehensive, non-cascading tax system everyone should be welcoming it!

Equally, the demand seeking to moderate the GST - RNR to 18% will be heartily welcomed by industry, trade and consumers. Lastly, nothing can be more rational than and doing away with 1% additional tax which has been proposed on all inter State sale of goods and services. This 1% additional tax is a more potent but condensed version of CST as the levy will extend to services also.

Though these demands seem to be tough ones, they are definitely in the interest of the industry, trade and the consuming public. It would be very heartening to see the ruling NDA and Congress setting aside their differences and petty politics to converge to create a perfect GST for India. Not just aim to implement a compromise formula of GST. A perfect GST would be historic!

It appears that the Congress members in the Select Committee may record a note of dissent with their recommendations to the Rajya Sabha, specifying the above points.

We will have to wait and watch whether the Central Government uses this as an opportunity to push the envelope and work towards getting all stakeholders on board to implement a perfect GST.