GST is in the larger interest of the country, and what is for the good of the country, the Indian National Congress and ‘We’ in Opposition have always supported

Press briefing anand sharma ji Sun, 16 Apr 2017

GST is in the larger interest of the country, and what is for the good of the country, the Indian National Congress and ‘We’ in Opposition have always supported

Debate on the Central Goods and Services Tax Bill, 2017; The Integrated Goods and Services Tax Bill, 2017; The Goods and Services Tax (Compensation to States) Bill, 2017 and The Union Territory Goods and Services Tax Bill, 2017

Anand Sharma: Finance Minister has presented four GST Bills, ‘The Central Goods and Services Tax Bill, 2017’; ‘The Integrated Goods and Services Tax Bill, 2017’; ‘The Goods and Services Tax (Compensation to States) Bill, 2017’ and ‘The Union Territory Goods and Services Tax Bill, 2017 has been presented in the house, which have already been passed in the Lok Sabha. It becomes necessary because GST will bring a big change in the taxation system of the country, if it is looked in depth whether we are ready today and ore prepared fully and if we have studied all the aspects as we had thought? The concern that has been presented-by the consumers, small industrialists, by the states-whether they have been resolved or not? It is also important to remember that last August Constitutional Amendment Bill was passed, through which it was possible that the GST may come, GST becomes a law and is simplified in the whole country, as it had been said, there should be one tax in one country. ‘One nation, one tax.’ That has been the stated objective. It is true that it is a historic change, historic legislation which will bring about a paradigm shift when it comes to the taxation of goods and services both by the Centre and the States. But, Sir, when we look at that, there was the broad consensus across the political spectrum which was achieved last year. But perhaps it is imperative to recall that this was delayed for seven long years.

And it was delayed because of partisan stand-offs and not because of any merit or any justification. And when that happened, it led to a huge loss. Today, when we are being told that--and it is correct also that it will help in the long run to increase the GDP--there will be a value addition as to whether it is 0.7 per cent or 1.5 per cent; we are not in a position to tell that but it will surely benefit in long term. There has to be some introspection by the Finance Minister, his colleagues and the Government that by resisting and opposing it for so long, what loss was caused to this country and whether there is any realization or regret today or, perhaps not. But, that is, in fact, a matter of pure academic interest today because we cannot revert to those years nor can we reverse the clock of time. At the same time, I would also like to mention that--though, it has been categorized as a Money Bill, and I am not questioning that, and when it comes to taxation, duties, it will be a Money Bill--it was discussed in this House and there was a demand made that for the legislative process to be effective, both the Houses will have to be equally involved when it comes to the passage of these Bills and these laws. Mr. Deputy Chairman, Sir, Rajya Sabha, is, deliberately, not being given that importance when it comes to important legislation and I fail to understand, why! I said that there was a national consensus. We had tried to do it, we did not succeed. You have tried to do it, but, the difference was that, between then and now, there is a mature and responsible Opposition, which understood that it was in the benefit of the country and we decided to go ahead with the Constitutional Amendment, which, actually, has made or facilitated the laws that you seek to bring now. Therefore, it was important—there are inter-State issues, even if it is only about taxation of goods and services—that both the Houses had their full say and the concerns of the Members, who would be articulating the concerns either of the producer, consumer or of the society, as a whole, are adequately addressed. Sir, the purpose and objective of the GST is to have a simple, effective and efficient tax structure. Therefore, the question is: Are we, actually, going to create an efficient structure, simplifying, reducing the burden of compliance on the industry, on the tax-payer and also ensuring that the final GST rate will not be unaffordable or too high, and will we, genuinely, by passing these Bills, bring down the burden on the producer and the consumer, both? Sir, I have my doubts--it is because of the multiple GST rates as have been proposed--while agreeing that it is a complex process, particularly, when you seek to bring all the States on board, but the GST slabs of 5, 12, 18 and 28 per cent do not make it an ideal GST.

There is no clarity. Yes, we are told that those goods which were attracting low taxes on duties will be kept in the 5 per cent tax slab. But why are these four? These are not actually four. This morning when we were having a look at it, in the IGST Bill, it says, “not exceeding 40 per cent.” When the Finance Minister replies, I would request him to explain why these 40 per cent in the IGST Bill. So, that makes it five plus, you have now raised the peak rate now to 20 per cent. How will that operate, how will it affect the categorization, the listing of goods and the listing of services? Unless and until you are ready with it, you can’t move forward. Then, as we move, during the transition period, I have my fears that there will be arbitrariness. It should be non-discretionary. That is the first issue that I have to raise about the multiple tax rates. How will it impact the overall GST rates in this country, given the exemptions and the exclusions that we have? I will come to that later.

Sir, the rules are yet to be framed. The GST Council has recommended the laws. The Lok Sabha has approved them. But, unless and until, we have the list of different category of goods attracting different GST rates ready in the public domain which is acceptable, it would lead to implementation or compliance problems. The rules should be clear. The industry must know, the States must know and the taxpayer must know what the rules are. When will you be ready with the rules? The Government is keen to implement it by 1st July, 2017. There is hardly any time left now. Why I am saying so because you have just formed some Working Groups on Health, Banking and Insurance? These are pan-Indian services. Those Working Groups have been asked to give their reports within two weeks. By 10th of April the reports are going to be with the Government. Maybe, you will be required to set up more Working Groups. So, all these works are yet to be done. That is why the concerns about the preparedness to implement the laws and that too in the midst of the financial year because by the time it gets implemented, it will be almost the middle of the financial year. I am sure that the Government would have taken all these things into consideration and not create a situation that will open up avenues for discretion, interpretations, misinterpretations and disputes. We would like to urge the Finance Minister, and surely the GST Council which he chairs that most of the goods where directly a citizen is affected or a consumer is affected must be included in the 5 per cent slab as he is presently taxed at low rates. You should resist the temptation, as the suggestions have been made by some sections, to bring the maximum number of Goods and Services in the model GST rate of 18 per cent. That should be resisted. It will be highly inflationary. This will put big pressure on the consumers and industries, thus it will be better if you do not do it. Finance Minister should make a clarification about this.

It is said if two and GST rates are there, then it would have been fine. Two or three, if more were there, it would have caused more confusion, it would cause huge loss, equally it will be painful. It is quite right that when such a big step is taken, then many such problems and hindrances do come. But I would still maintain that a moderate rate, perhaps, would facilitate voluntary compliance. The Finance Minister would agree that the best must not become the enemy of the good. That is why we have the concerns whether you have gone for the best option or not.

Mr. Deputy Chairman, Sir, there is also a concern about the cess. It lacks clarity. There are different cesses, which would be proposed, for each demerit goods, as we understand it. Will you have one cess, which will go towards the common fund to compensate for any revenue loss to the States, and what will finally be done with the cesses? Since you want ‘one countryone tax’, what would you do with all these cesses, which are already there, which actually is an additional burden, particularly when it comes to consumers, citizens, let alone the industry? In the last few years, we have seen increase in cesses, increase in Service Tax, which has adversely affected when it comes to the people, when it comes to the tax payers. We want to know whether, eventually, the Finance Minister proposes to subsume all these cesses once the transition period is over; and do you have any proposal that, after a defined period of time,you will reduce these multiple slabs to improve not only the compliance, but also the GST, which is acceptable, which is not only there for namesake?

Why I am saying so, Sir, is that when you look at the list of exclusions, it is worrisome. All petroleum products like diesel, petrol, aviation fuel, turbine fuel, gas, has been kept out. It is elementary common sense that that is the biggest multiplier when it comes to the transaction cost. For transportation, we know that it has been included, but it would be triggered in; I was referring to the petroleum products, when you were talking to the Power Minister, that the exclusion of petroleum products actually is not a healthy sign. You may have constraints and compulsions. Each State would have its own diesel surcharge; each State would have its own duties; so, we would end up paying different prices, like it is today for petrol, or diesel all across the country. Unfortunately, you have not addressed the issue of aviation fuel; it is a pan-India service, particularly when it comes to the input tax credits. How would that affect? And I would come to other services where the concerns are bona fide concerns and which need to be taken into consideration.

Sir, in addition to petroleum products, electricity has been kept out. When we look at the core sector of the industry, whether it is cement or steel, energy intensity is very high, going up to 25, 28 and 33 per cent. Now, you are keeping electricity out; that is another thing. Each State will have its own rates. How would it make a ‘one countryone tax’ norm?

Real estate has been kept out. Why? When you are fighting illegal transactions, black money, why real estate should not come in, why real estate should go out because it is not going to be resulting in any revenue loss to any of the States, revenue neutral when you want to make it, and that is the objective. And also about alcohol, we understand the difficulties. But when 40 per cent of revenue base you keep out of the GDP, how is it an ideal GST? It is not. It is imperfect. How will you do it, even if you say the Model GST rate is 18 per cent? We don’t know what is your definition, categorization or listing of the luxury goods where the 28 per cent tax will be there. When you are also looking at one window of 40 per cent, this will make, perhaps, our GST one of the highest GST rates in the world. This is a concern. Sir, when you look at the global scenario, the GST rates are below 18 per cent. In the rich and developed countries, they are less than 17 per cent and same is the case with emerging economies, 16.4 per cent. The Finance Minister alone can explain that when you have such a heavy list of exclusions, how are you going to help in achieving the objective and particularly when it comes bringing down the transaction cost and reducing the burden on the industry, particularly medium, micro and small enterprises? Sir, Service Tax is important because it is Goods and Service Tax. There are many services. Most of the services are pan-Indian services, inter- State services. We have seen two-and-a-half per cent increase in the Service Tax. Now even if you want to keep the Service Tax at Model GST rate, the Finance Minister must make it clear whether there will be different categorization of services also like the goods for different rates. But if you propose to keep it at 18 per cent, even three-and-a-half per cent jump will be hugely inflationary. There is no safeguard clause. When we look at the Bills which have been passed and brought to this House, there is no proposal as to how you will address this issue of inflation and whether you are considering any safeguard because it will be across the board. Therefore, the concern again is very serious and it should be taken in that spirit. Sir, when we are talking of a model GST law for registration and compliance in each State for supplies of goods and services, we have to ensure that the complexities are less especially for services which are inter-State or pan-Indian just as banking, insurance, telecom airlines, e-commerce, transport, etc. What is being done is that it actually negates the very concept of improving the ease of doing business which is one of the national objectives and priorities because the present GST law proposes registration in every State. So, each State will have its own Registration Authority. That will come in the way of compliance. You are not improving the overall business climate.

Ideally speaking, it is imperative to have a Centralized Registration Authority under the GST with credits to the States through the IGST mechanism. If you do not do that, then, imagine the case of service providers who actually have to register in each State even if you say there will be refunds and we are talking of inputs, credits! There are bound to be complications and bound to be difficulties and if you propose to create, as this Bill seeks to, a common market, then, there should also be a single assessment audit and also advance ruling. Now, what you are proposing is, each State will have its own advance ruling. A model GST law should have a clear mechanism on how this will be implemented, particularly when it comes to assessment and audit because dual administration will not only be tedious, but a severe drain on the administration, both on the Central Government and the State Governments. Multiplicity of proceedings for tax payers, particularly for industry which has inter-State presence or Pan India presence will be creating more complications. Therefore, I would also suggest, as I mentioned about the Central Registration Authority, using the IGST mechanism for tax credits, a national Advance Ruling Authority. Will the Finance Minister consider? Has this been discussed in the GST Council? Sir, during the transition period there will be bona fide concerns arising. People have to be prepared, industry has to be educated. Everybody is not aware of these complex structures, laws. We are going to pass four laws and going to implement them in a few months. So, some hand-holding will be required and during the transition period it is important that the harsh provisions that you have put in, like recoveries, search, seizures, are not implemented. There should be a time period; then industry is prepared, producer is prepared, tax payer is prepared. Otherwise, with the low threshold -- when it comes to exemption -- it will hurt small businesses, small retailers, small enterprises, because the threshold is far too low. It should have been much higher than the proposed Rs. 22 lakhs. Why has that not been achieved? Only the Government can explain. But, at the same time, it is important that as you go for implementation, both the Central and the State Governments create an institutional mechanism, which protects or insulates the tax payers from harassment, and you do not create multiple windows of tax harassment, search, seizure, arrests. Already this is happening and if it leads to that situation, then, surely you will not be helping the economy, nor the industry, nor the consumers. I have a suggestion, Sir. During the transition period, the Finance Minister may consider to get an offset estimate which industry or the producers, out of ignorance, may not have availed of. Perhaps that will be something which will be useful. Can that be done through the technology or the GST network that will be set up to implement this?

There is another matter of concern, i.e. taxation of selfsupplies. If there is inter-State movement of goods or, for that matter, services and if there are two divisions of the same legal entity, then, in each State the registration will be subject to the GST. Even if there are going to be refunds, which will not be automatic, this is something which is a matter of concern.

Even in the service sector, which is banking or insurance-- from the Head Office to the State level Office or the Regional Offices -- that would be factored in and invoices would be raised. Has this issue attracted your attention? Have the concerns been registered with you? Particularly, when it is the same entity -- the producer is the same and it is not the final finished product-- if you propose to impose this GST, it should only be on the final product; otherwise, it should be avoided. As I have said, these difficulties will be more pronounced in the service sectors.

Sir, another matter of concern is the small States, the NorthEastern States and the special category States. They have been given certain taxes, or, incentives, and that is to promote investment and to promote industrialisation. That has helped many border States, whether it is in the North-East or the States of Himachal Pradesh, Uttarakhand and Jammu and Kashmir. Many years ago, we had decided to set up the Special Economic Zones to promote investments and certain exemptions were also given in the case of SEZs. Now, we would like to know, after the GST comes in, what will happen to the North-Eastern States, the incentives that have been given to the special category States and to the SEZs? There are many States, which, actually, have come out with their own incentive schemes to promote investments, or, to attract investments. Will there be any grandfathering provision? If not, how does the Finance Minister propose to address this issue? So, Sir, as I said right in the beginning, the difference between past and present --- the difference when the Leader of the House and Finance Minister was sitting where Shri Ghulam Nabi Azad is sitting today, and when the then Finance Minister was there on that side --- is that we were not lucky, nor does the Prime Minister, Dr. Manmohan Singh then to make the Opposition understand the benefits of the GST, when it was referred to by none other than the Prime Minister who is seeing all virtues and benefits today, but he was the single most agitated against the GST saying it will destroy the federal spirit; it is against the Constitution. Well, we know that. We have no quarrel that if there is more wisdom that has come in. Perhaps, all of you would have said that it is in the larger interest of the country, and what is for the good of the country, the Indian National Congress and ‘We’ in Opposition have always supported. That is why, we have facilitated and supported the passage of the Constitutional (Amendment) Bill. But, to conclude, I will say this is not going to create neither a perfect GST nor ideally a common market; it is fractured, implementation issues are there, and there are also serious concerns that it will be inflationary and you will add to the burden, which is unbearable even today, to the citizens and the industry both. I hope the Finance Minister, in his reply, will respond to the issues raised.


Excerpts from the speech of Shri Anand Sharma during GST debate in Rajya Sabha on 5th April 2017