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Updated: July 12, 2012 13:10 IST

An inordinate delay

G. Srinivasan
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Yashwant Sinha.
The Hindu Yashwant Sinha.

As implementation of the Goods and Services Tax has already missed two deadlines and is still caught in legislative wrangles, a comprehensive indirect tax reform seems a distant dream

With the Prime Minister Dr. Manmohan Singh now overseeing the affairs of the Ministry of Finance in the place of Pranab Mukherjee, who resigned to contest the Presidential poll, reform measures for which Dr. Singh had been the original architect are now back in the news. One such important piece of economic reform is the Goods and Services Tax, succinctly known as GST. A far-reaching tax reform measure, the GST aims at integrating the country into a common market by dismantling fiscal barriers among the States and by aligning the plethora of tax rates and pruning needless exemptions in the tax statute for revenue maximisation.

If the extant Value Added Tax (VAT) is deemed a vast improvement over the pre-existing Central excise duty at the national level and the sales tax system at the State level, then the GST would be the logical culmination of a comprehensive indirect tax reform in the country.

Mooted five years ago by the then Finance Minister P. Chidambaram in his “dream budget” of 2007-08, the GST that was to have been in place in 2010 has already missed two deadlines with the principal stakeholders — the Centre and the States —still floundering to fix the areas of differences for the pan-India goods and services tax to serve a unified market of more than a billion people. Interestingly, the GST structure proposed by the first report on the subject headed by Dr. Parthasarathi Shome was a seamless one. But the subsequent ideas that flowed on GST distorted this basic bedrock with the Finance Ministry plumping for different rates for goods and services for the first year and all the rates being proposed to converge in the third year. The Empowered Committee (EC) comprising State Finance Ministers also presented a report a couple of years ago highlighting what States seek in the GST.

The objective of GST is to tax all goods and services. While VAT or excise duty is paid on almost all consumable goods, it is not so in the case of services. The ground for service tax under GST is paved with the introduction of a small negative list comprising 17 heads, leaving all services to be taxed. While the right to levy service tax is a Union subject, after the advent of GST, States will also be allowed to levy service tax.

In a move to kick-start the GST, the Constitution (115 Amendment) Bill was introduced in the Lok Sabha in March to enable Parliament and State legislatures to make laws for levying GST on every transaction or supply of goods or services or both. Some goods such as crude petroleum, diesel, petrol, aviation turbine fuel, natural gas and alcohol are excluded though. An Empowered Group headed by Nandan Nilekani was set up for evolving the design of the GST Network (GSTN) — a common portal for the Centre and States that would facilitate electronic processing of the key business process of registration, returns and payments. But a lot of ground work to launch GST continues to drag through, particularly when a Constitutional Amendment Bill of GST genre calls for a bipartisan approach.

Be that as it may, when The Hindu spoke to former Union Finance Minister and senior BJP leader Yashwant Sinha on the issue, he lamented the “great misunderstanding which is prevailing even in media as far as GST is concerned”.

“The GST Constitutional Amendment Bill is being examined by the Standing Committee which is headed by me,” Mr. Sinha said adding “we plan to give our report in the monsoon session”. He quipped: “We have already submitted reports on nine bills with the government which are pending and we will also submit this report”. But the government is to take a call by bringing the Bill for passage and “let us say if they can do that, it will be taken up only in the winter session. Even then, if the Constitutional Amendment Bill has to be passed, it must be sent to the State legislatures where at least 50 per cent of them were to approve and that will take its own time”. After that, specific laws and clauses will have to be framed and passed by Parliament and State legislatures, he stated.

Currently, a Committee set up by the government is working on a model legislation. The GST will not succeed if there is no GSI-IT network. The Nilekani report will be ready by September-October which will have to be examined by States. All these processes have to be gone through and “you cannot have this Constitutional Amendment Bill definitely not before the middle of 2013 and you will not bring such a crucial bill in the middle of next year when the nation would be poll-bound for 2014 general elections,” Mr. Sinha clarified, putting the onus squarely on the government for the delay and dithering of the GST.

geeyes@thehindu.co.in

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