It seems that the fracas in Parliament over demonetisation will impede the roll-out, or at any rate the completion of all the legal requirements, by April 2017. A six months' delay is definitely on the cards, unless both the ruling party and the Opposition get their act together. This is indeed a pity. This year stands out for the progress made with respect to the movement towards a truly transformative tax regime. Parliament passed the 122nd Constitutional Amendment earlier this year, allowing the States and Centre to criss-cross into each other's tax domains with respect to goods and services. About a month ago, the GST Council came out with a multi-tier formula of rates – nil, 5 per cent, 12 per cent, 18 per cent, 28 per cent and a punitive rate for 'sin' goods. Now, the impasse is over 'dual control' – in other words, if both the Centre and the States are to tax goods and services, are assessees to be 'inspected' by both? At present, it has been agreed that goods and services below a turnover of Rs 1.5 crore will be administered only by the States, with joint control applying to enterprises above this limit. However, dual control on the ground – which will translate into two sets of inspector snooping around an assessee's enterprise – is a bad idea. It smacks of a return to inspector raj; of bonafide businesses being harassed. This is profoundly ironic, given that GST is about simplifying tax rules and making things easier for businesses. Indeed, with a simple set of rates, there should no longer scope for confusion or ambiguity over what rate ought to apply to a product or service. The administration of GST should require a smaller tax force on this account.
This perhaps explains why the tax departments of both the States and the Centre are actually agitating against giving up their existing domains, and hence the discretionary powers that they have grown accustomed to. Both, the Centre and States should overcome the immense bitterness over demonetisation and set this ghost of dual control to rest. West Bengal Finance Minister Amit Mitra, with his entrepreneurial background, should take the lead in demarcating the respective jurisdictions of the tax departments. He has raised concerns over the sudden ballooning of the tax base with respect to services, from 1.1 million in earlier Council discussions to over 3 million. Rather than insinuate that the Centre wants to hold on to administering services, the State finance ministers should work out the matter in an amicable spirit, without being swayed by powerful vested interests in the tax bureaucracy. The larger goal of ridding India of labyrinthine red tape in our taxation laws should not be lost sight of, especially after having gone so far.
However, the onus for creating a spirit of consensus also lies with the Centre. The Prime Minister should show the way in breaking the impasse, so that the larger gains to be had with respect to GST are realised at the earliest.