Real GST test yet to come

Published: 05th August 2016 04:00 AM  |   Last Updated: 05th August 2016 01:32 AM   |  A+A-

At long last, the Rajya Sabha on Wednesday passed the Constitution (122nd amendment) Bill, an enabling legislation for the introduction of Goods and Services Tax  (GST) Bill. It’s historic as both Prime Minister Modi and Finance Minister Arun Jaitley pointed out, for the simple reason that it’s perhaps the single biggest reform undertaken since the economic liberalisation in the 1990s. First mooted in 2005, it has taken over a decade for all the political parties to rise above narrow political considerations to give assent to GST. But, any celebrations will be premature. Jaitley has set an ambitious target of April 1, 2017 for the GST rollout. 

For that to materialise, more than half of the State legislatures will have to approve the Constitution amendment bill — the Centre hopes this will be done in a month. And then, following the President’s nod, a GST Council, with representation from the States, will have to be set up to draw up the final Bill. On the face of it, given the broad political consensus, it appears GST will be a reality next year. Nonetheless, the government must not be complacent. There are pitfalls galore. First and foremost is the question of ‘optimal rate’. The Congress has been insisting on keeping the GST rate at 18 per cent, arguing that the rate should be as low as possible. It must be fully aware of the fact that States are already worried about losing revenue if GST comes into effect. Most States want a standard rate of over 20 per cent since it effectively nullifies their control over various taxes and by extension, affects their revenue inflow.

It’s a tightrope walk for the Centre because a higher rate would push inflation and a lower rate would hit the States hard. It has left it to the GST Council to sort out the issue. Finally, the Congress wants the government to make the GST Bill a finance bill. When States too have had their say, the government should not let one party further delay a reform measure of this magnitude.

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