The Hindu Business Line : GST’s unifying role

The Goods and Services Tax (GST) is still a year away if the time given for its implementation by the UPA Government is adhered to. But a healthy debate has already started as to the contours and contents of arguably the most profound and far-reaching law in the making.

There seems to be unanimity on one issue though — it should be a Value Added Tax (VAT) and not a tax on the entire value of sale. There also seems to be a general consensus that unlike the present service tax which discriminates between one service and another in the matter of its applicability, GST should be essentially non-discriminatory in character with all goods and services being brought into its dragnet but for exemption to small-scale dealers in goods and service providers.

Exemption to small units could mar the effective operation of the GST system though, as there would be a perverse premium on smallness. Be that as it may.

Divided opinion

The central issue that is being debated hotly is whether the GST should be a federal tax or a state levy with opinion divided right down the middle. Proponents of the pan-India model say that in the matter of taxation there is nothing wrong in the one-size-fits-all approach because after all the nation is one and States should not be allowed to steal a march over others by lowering the tax rates or by conferring exemptions — the bane of the system of local sales tax on goods before the Ashok Mitra Committee could convince the States of the need for bringing about a modicum of uniformity.

The federal character of the new law could though throw up a problem that has to be deftly handled — revenue sharing between the Centre and the States as well as the inter se shares of the States. But there is no need to be unduly pessimistic in this regard as the Chinese and Australian examples have shown even though sceptics could be dismissive of the Chinese success on the ground that it is after all a dictatorship.

In any case, the Finance Commission can be counted upon to do a fine-balancing job which does not ruffle many feathers. Weak States would welcome such a unitary law given the fact that competition in the matter of tax hurts them more. But well-performing States may either oppose a unitary law in toto or insist on a revenue-sharing agreement that reflects their contribution to the revenue kitty of the Central Government.

Those who are in favour of a State-level GST have it that given our constitutional scheme of things, it would be impossible to usher in a unitary GST. Some of them even aver that a unitary GST would violate the basic structure of the Constitution even if somehow a constitutional amendment in this regard is steamrollered. These fears seem exaggerated. There is no reason why the Constitution cannot be amended even though the UPA is not in the saddle in many of the States. After all, in the implementation of the local VAT, opposition by non-Congress ruled States were overcome patiently.

Moreover, arming the Centre with the power to impose tax on what was earlier the States’ turf cannot be termed as violating the basic structure of the Constitution because at the end of the day for administrative purposes States are going to remain intact.

Beneficial to consumers

All in all, the unitary GST model would be conducive to better governance and uniformity. Consumers of goods and services would find it beneficial with no need to shop around for purchases in a tax-friendly State a la treaty shopping by nations.

It could have another spin off — rallying round the nation that is riven by caste and regional divides. The unitary model would facilitate a single tax with a single rate replacing as many as 36 tax statutes of the States and the Centre.

Excise, sales tax and service tax can all be lumped together sparing the consumers of the burden and tedium of dealing with numerous taxes and authorities. GST at the Centre and the State levels, on the other hand, would only make a small dent into the problem of multiplicity of taxes and authorities.

Confidence building measures must be initiated in right earnest to win over recalcitrant States and political parties. They must be convinced that the move is not an assault on regional autonomy or on the idea of regionalism.

(The author is a Delhi-based chartered accountant.)

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