Notes on GST Bill

An Integral Part of the Neo-liberal Reform Agenda

All the big economic reforms that have been offered to us especially in the last three decades have been generally accompanied with much fanfare and great enthusiasm on the part of ruling establishments. GST is no different. When polices of liberalization, deregulation and privatization were mooted in late 80’s and early 90’s, we were told that it will end the troublesome licence-permit raj and thus would help in curbing corruption. When the rates of direct taxes were lowered albeit gradually, we were told that it will increase voluntary tax compliance and widen tax base, and as a result curb the black economy. But most would agree that the real life experiences have been much different from what was promised. Corruption has ballooned to great heights from what it was during the much derided licence-permit raj and the graph of black money economy as a percentage of GDP has only gone one way in all these years!

It is argued that Goods and Services Tax (GST) is one key reform that will give a much needed boost to the Indian economy that is still reeling in the aftermath of the global recession. The ruling establishment has also been able to build a larger consensus on it as compared to other big reforms on its priority agenda such as the Land Bill and labour reforms. The protagonists of GST argue that it will promote free movement of goods and services in the country by building a common national market. They argue that the present multiple taxes and varied rates for goods in different states hampers the emergence of this much needed common market. The present indirect tax regime also results in cascading effect through double taxation (as taxes are levied on taxes already included in value as goods pass from one hand to another), which has created a situation where voluntary tax compliance is lower and several exemptions and multiple rates in various states has narrowed down the possible tax ambit. They argue that GST could effectively address all of these issues.

GST is an indirect tax that would replace many of the existing indirect taxes such as Cenvat (levied on production of goods, earlier known as Excise tax) and Service tax levied by the Central government and VAT (popularly known as sales tax), Octroi, luxury tax etc levied by State government with one single unified value added tax regime.

Constitutional Question

The present constitutional arrangement allows State governments the exclusive rights to levy taxes on sales and purchases of goods. Hence the GST Bill has taken the form of Constitution (122nd Amendment) Bill to enable the introduction of unified GST which would be value added tax on production, consumption and sale of both goods and services. With this Bill passed, States will lose their federal power guaranteed in the constitution of deciding which goods to be taxed or exempted, or to decide on tax rates that may suit state specific conditions. The Bill proposes a new constitutional body named GST council which would be controlled by the Central Government as it will have one-third voting rights. It is important to note here that VAT (Sales tax) is the single most important source of tax revenue for states, accounting for about 60-80 per cent of their total revenue generation. The proposed constitutional body will thus effectively takes away the right of elected legislatures and parliament to legislate independently on the subject of taxation.

Centre-State relations

The fact that the introduction of GST would negate the existing exclusive constitutional rights of States to levy taxes on sale and purchase of goods has raised concerns on the part of some state governments that it impacts the federal structure of the constitution. Tamil Nadu has been the most vocal state so far to raise this issue with AIADMK filing a formal dissent note in the Rajya Sabha demanding 100 percent compensation for five years, but Central government believes that its proposed promise to compensate states for loss of revenue for five years (100 percent in first three years, 75 percent in fourth year and 50 percent in last year) should allay their fears and would bring most of the regional parties on board. The Central government has also proposed the right for producing states to levy one percent additional tax. But some are arguing that this will again lead to a cascading effect and the proposal has become a bone of political contention with Congress opposing it in its dissent note filed in Rajya Sabha. Petroleum Products, Tobacco and Alcohol for human consumption have for the time being kept out of GST purview and the proposed GST council has been empowered to decide the time of implementation of GST on these products. But this too has raised questions, with AIADMK insisting that a provision should be inserted to keep them permanently out of the purview of GST. These products are major source of revenue for State govts.

Many of the regional parties despite the recent debate have refused to state their positions on GST. They seem more concerned with using GST as a bargaining chip for state level political negotiations rather than protecting the federal character of India. Ironically the CPI(M), which has long experience of running state governments and has long been an advocate of more power to the States, voted in support of GST when it was passed in the Lok Sabha in May 2015. However in the Rajya Sabha the left parties have filed a dissent note highlighting mainly the concerns about federalism raised by the GST bill with the demand that the voting rights of the Central government in the GST council should be reduced to one-fourth from proposed one-third. AIADMK too has insisted on this and it is the Rajya Sabha where the NDA govt found the going tough as it is dependent on Congress and other regional parties for GST bill to be passed.

People’s Perspective

One important argument against the GST is that it impacts on the federal structure given in the Constitution by taking away rights of the States to plan their tax revenue based on their specific socio-economic situation and social sector spending requirements. It also takes away their rights to tax commodities of mass consumption at lower rates if necessary. But barring this point, which has been highlighted to some extent in ongoing discourse, the main opposition against GST from a people’s perspective comes when one looks at the proposed 'big bang' reform in the field of indirect taxation as an integral part of the overall neo-liberal policy direction of successive governments in the country which has been proving detrimental to people in various ways. Corporate and big capital seeks an integrated common market through GST for free movement of goods and services produced by it. Meanwhile local production of various essential goods of mass consumption is under threat as the unorganized sector will find it difficult to computerize its operation for issuing bills, receipts etc for compliance with GST while having to face increased competition from Corporate and MNC products. The operation of ‘market’ forces in the GST regime is likely to throw many of the small entities out of production creating increased unemployment which in turn will put further downward pressure on the existing stagnant wage market. It is not difficult to see that other big reforms such as FDI in retail and ‘Make in India’ can be most effective on the ground from the corporate perspective only if indirect tax reforms such as GST become operational. This concern of the Corporate lobby to create market space for themselves by displacing small scale production through measures such as GST was best highlighted by Adi Godrej when he recently went to the extent of saying that the GST bill is even more important than the Land Bill! It is this corporate interest in the GST bill which is pushing the NDA govt to get it passed to meet the April 1, 2016 deadline at any cost.

Genesis of GST rests in overall neoliberal philosophy

The push towards GST internationally from 1970s onwards results from the demand of international finance for an investor friendly regime that promotes ‘ease of doing business’. The government is not willing to increase corporate taxes for raising revenue and there is limited scope to raise revenue from individual income taxes beyond a limit. Hence the increased push for reforms such as GST, as it is difficult to evade indirect taxes. The burden of taxation is imposed on common people especially those working and toiling masses and peasants who don’t deserve to pay taxes, whose wages are already falling and facing increased inequality in greater proportion. GST is naturally regressive in nature as indirect taxes have to be paid by all at same rate regardless of income. This renewed emphasis on reform of indirect taxation worldwide can’t be understood by ignoring the overall policy framework which created a situation of reduced corporate tax while increasing tax ‘ambit’ and ‘compliance’ for indirect tax through reforms such as GST.

While some procedural improvements and even rationalization for a few commodities may be needed in the indirect taxes regime, the haste with which the Modi government has pushed the GST bill in the Rajya Sabha at the end of the Monsoon Session, after it was washed out due to the brazenness of the government in the face of serious corruption allegations, shows that the NDA government was keen to give a message to the corporate world about its seriousness on the proposed GST reform. It will certainly go out of its way to get this cleared as soon as possible as an important part of its neo-liberal reform package agenda. This measure seeks to increase the ratio of the burden of taxation on the people in the long term, while the government’s intentions of favouring the corporates and the rich are clear as it does not want to reduce hefty exemptions and tax reductions being given to them.

Tailpiece: The Government proposes uniform tax rates throughout the county, irrespective of local conditions; one wonders what stops the Government from ensuring uniform Minimum Wage rates across the country? Such a move will not need any Constitutional amendment, unlike the GST. When every field of production is today dependent on migrants, labour has already been universalised; why not the wages?

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