The seed for GST Council was sown with the formation of Empowered Committee of State Finance Ministers during the tenure of Yashwant Sinha the then Union Finance Minister. Sinha, who was the Finance Minister in the Atal Bihari Vajpayee government, in conversation with BusinessLine says that “GST is what we all have worked for, but disappointed in the manner it has been done”.

How do you perceive GST in its present form? Are the tax rates justified?

Let me take you back to my period. I not only started with VAT (Value Added Tax), I had introduced Cenvat in place of central exercise by making refund of tax fully available to traders and manufacturers. State VAT was ready for introduction when I shifted from the Finance Ministry.

We also created a precursor to the GST Council by creating Empowered Committee of State Finance Ministers. I had also reduced the Central Excise Duties to only three rates – mean rate of 16 per cent, merit rate of 8 per cent, demerit rate of 24 per cent. We had made sure that the bulk of the revenue came from the central rate. This is something which was achieved with great deal of difficulty because raising rates is not easy (from 2 or 3 to 16 per cent), there are bound to be protests.

Simplicity of rates has a great value because it eliminates lobbying for migrating to lower rates, removes discretion at official and political levels, and prevents litigations. These are the advantages of having lesser number of rates. Therefore, I was disappointed when I found that in GST they have fixed six or even seven rates. They are saying four rates, but below five per cent also there are other rates like for gold.

I am dismayed at the multiplicity of rates because by doing so they have undone what was achieved. Even Service Tax had one rate at the Centre now that has also split into various rates. This also is a step backwards.

VAT itself has been having its challenges do you think GST is doable at this juncture?

When GST was running into all kinds of problems due to Opposition of some of the States and involved a Constitution Amendment, I had suggested that the Centre should have its own GST. Like we did for VAT, before the State VAT came we had the Cenvat. We did so because we wanted to prepare the ground for State VAT. The States could see a model.

GST at the central level would not have involved any new legislation or Constitution Amendment, all the the Finance Minister needed to announce was merger of service tax and goods tax, so Cenvat and service tax could have merged and the tax refund could have become available to the people who had paid service tax in their State.

But, now we have not created a model and went in for nationwide GST. If we would have done that it would have been easier.

What are the challenges you foresee in implementation?

There is a lot of talk about teething problems. It will not be merely teething problems, but problems as we go along because of the multiplicity of rates. In fact, the day GST was to come into operation the GST Council had to revise rates for fertiliser. I am sure they are flooded with requests from other sectors and producers to reduce the rates on their products also. These complications are going to make life difficult.

It is not only administrative, its more philosophical problem – what is the philosophy involved in the fixation of rates? Why did the GST Council go for 12 per cent rate for fertiliser, why gold at 3 per cent and notebooks at 12 per cent? These are all contradictions which will emerge.

Besides, GST network is going to take three-four months to stabilise.. While GST is a very good development, this is what we have worked for, but I am a bit disappointed in the manner it has been done.

How do you look at the provision for anti-profiteering?

What happens is that when you increase taxes, the trader and manufacturer immediately builds it in the product price so that he doesn’t lose. But, when it is reduced it is not immediately passed on to the consumer. This is an administrative and enforcement question.

But, if you arm the authority with power to prosecute and arrest there is a draconian element in it, which can easily lead to misuse.

You think it is the right time for direct tax reforms…

The UPA government had introduced the Direct Taxes Code Bill. This was also a major tax reform proposal. It came before the Standing Committee of Finance, I had examined it and given a report to the Parliament. I have always maintained that like we have moved to GST on the indirect taxes side, we should move to direct taxes code. All these controversies like introduction of GAAR would have been taken care of if we had gone for the Bill.

I urge the government and the finance minister that they should look at direct tax reforms seriously.

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