Modi government created a mess in implementing GST
Punjab’s Finance Minister and Member of the National GST Council Manpreet Singh Badal tells why Congress is keen to introduce GST version 2.0 to solve PM Modi’s (mis)adventures in the economy
What prompted you to take a tough stand against GST which has been claimed to be a historic achievement by the NDA Government’s Finance Minister Arun Jaitley and Prime Minister Modi?
Let me first make it absolutely clearly that Congress party is not against the GST. It was and is for the GST. In fact, the Congress Government headed by Dr Manmohan Singh made very forceful attempts during its tenure for three years to get the GST through. In 2011, the Congress led UP Government introduced the GST in Lok Sabha and April 2012 was set as the deadline to roll it out. The objective was to demolish fiscal barriers between states and to facilitate the ease of doing business across the country for all concerned. But it was the BJP which continued to block it one way or other without any rational explanation. This is evident from the fact that their own bill later was hardly any different in substance from the 2011 Constitution Amendment Bill.
In fact, if I go a little more into the past, tax reforms were actually initiated by late Prime Minister Rajiv Gandhi during his tenure when a simplified version of GST, by the name MODVAT, together with many other reforms were introduced in mid-eighties.
Why then did the Congress oppose it tooth and nail for quite some time when Modi Government pressed for it in Parliament?
The Congress had been pressing for certain changes in the GST Bill, including in particular issues of capping the maximum tax rate to 18%, adequate compensation to deficit States, levy of origin based tax that was initially proposed in 2014 bill, and the lack of dispute resolution mechanism that was removed in 2014 unlike the 2011 bill.
Had the Modi Government conceded to the points and concerns raised by the Congress before its passing the Bill in the Parliament, then most of the 2000 changes made inthe GST since July 1, 2017, when it was enforced in the country, could have been avoided.
There has been so much patch work done on the GST since its implementation that it is now difficult to comprehend what it originally was. Little is left of the original GST because of the changes made in it by the GST Council to smoothen it during the past one and half year.
Where did the NDA Government falter with regard to the GST? What mistakes were committed by it in the process of passing and implementing the GST.
Modi Government made a mess as far as implementation of the GST is concerned.Rather, I would say the handling of the implementation of the GST was so pathetic that ultimately it proved to be disaster a for the Indian economy for a quite long time. Traders, businessmen and industrialists cried from their rooftops against the shabby manner in which implementation was being handled. Many of them had to close their business and have been unable to revive them till now.
Despite the failure to incorporate the suggestion of Congress to the constitutional bill, I Have no hesitation in admitting that the launching of this tax in the country was a landmark achievement. But it was implemented without doing adequate homework by the Modi Government and its agencies concerned.
The Government showed a tearing hurry to push the GST down the throats of taxpayers concerned. The GSTN was woefully out of sync with the procedural requirements.The whole design and compliance requirements were draconian. The tax rates in many sectors were (e.g. textiles) loaded in favour of imports.
It was obviously wrong to do so and it proved harmful for the economy especially to the informal sector which suffered hugely. If someone asks me to measure it on a scale of 100 points, I would give no more than 20 points out of 100 to the incumbent Government in the Centre as far as the implementation of the GST is concerned.
Why did the Central Government do so?What made it implement it in haste after having opposed it for three years?
I think it was the arrogance of the incumbent Government that is by and large responsible for haphazard handling of the GST implementation. It did not hold enough stakeholders’ consultations before enforcing it. The Government should have come outwith detailed guidance notes, as is so typical anywhere in the world where such reform has been introduced so that both sides are clear about legal provisions.
The Government, I think, got itself busy in giving hype to the passing of the GST Bill in the parliament. For it, taking credit for the GST became more important than supervising its implementation by creating a congenial atmosphere for the taxpayers. Actually, for many months it even did not take note of the difficulties faced by traders, business and others concerned. It kept dismissing it as a mere propaganda.
Businesses faced a lot of problems for a long time to file their returns? What was the reason? Was there any failure on the part of the Government?
As I have stated earlier, the government ignored the difficulties that taxpayers encountered after the implementation of this tax. Adequate infrastructure was not in place. GST network had literally no clue of the challenge facing the mand totally crumbled. Even the simplified return could not be filed in time resulting in frequent extensions. Export refunds could not be given for a very long time denting GDP growth.
Paying of tax became so cumbersome that traders and business were left with no alternative except to take the help of technocrats and accountants to handle the returns. The entire process became so draconian that it led to resentment among tax payers and the country witnessed protests in many cities including Surat( Gujarat) where traders held demonstration against the GST weeks before the Assembly elections in that state.
What was the impact of mishandling of the GST implementation? Did it hit the economy hard?
At the time of passing the GST Bill, it was announced by the Government that its introduction would give a boost to the economy. There would be three major visible gains. First was that country’s GDP rate would go up by 2 per cent, second was substantial gain in the tax revenue and third was boost to the exports. But nothing of that sort happened. What was claimed did not materialize. There is no such additional 2 per cent increase over and above the normal project of growth in the GDP and nor there is any gain in the indirect tax revenue. Rather tax collection gone down than what was expected and exports also suffered.
I would say that on the average there is less collection by Rs12,000-15,000 crore of revenue every month. The annual loss of revenue from the GST is in the range of Rs 1,50,000( one lakh) crore plus per annum. Barring some outliers, with obvious explanation, monthly tax revenues remains below Rs 1 lakh crore. The Centre has to compensate, which is a legal binding on it, almost all states due to fall in indirect tax revenue.Take the case of Punjab. In the state, tax revenue is down by 37 per cent and that too after giving some provisional IGST, which shall not be available in future except to some minuscule extent . Honestly speaking, I am the most worried Finance Minister in the subcontinent because of huge fall in tax revenue in the state. I believe the only one more worried than me should be Pakistan’s Finance Minister Assad Umar whose country is buried under a mountain of debt. The Centre would continue to compensate Punjab and other states till June, 2022 but what would happen later when compensation period would be over. That is what is bothering me the most.
All main sectors of the Indian economy were hit hard. Mumbai stock exchange figures reveal all that. Would you believe that the SMEs suffered a loss in their profit up to 300 per cent due to slow down in these sectors because of the GST. Medium scale industry suffered loss up to 30 per cent in their profit. Obviously, the GST was a virtual blood bath both for medium and small scale enterprises. Profit of big industries came down by less than 10 per cent only.
You have been talking about bringing the GST-Version 2.0. How it will be different one from the existing one?
The Congress party’s thinking on GST is crystal clear. First, it would dismantle too many tax slabs. In any other country, where GST is in vogue, there are not so many slabs of tax rates. I would like to bring it down to one or two slabs. New Zealand is considered the best with regard to the implementation of this sort of tax. There is only one slab of tax for all goods. And then tax rate. It is required to be brought down to a more affordable level, say not more than 15 per cent in any case, barring some sin and luxury goods.
GST is based on the one nation, one tax. But in our country, it is not so. For instance there are items such as electricity, alcohol, natural gas, the realty sector and petroleum products which are not covered under this tax. We would like to bring all these under its jurisdiction.
Other issue that is to be addressed is complexity of GST. It requires to be simplified to the extent the traders, shop keepers, businessmen should be able to file the returns themselves without any outside help that is now available to them at a very high cost. For instance, now small and medium enterprises have to spend anywhere between Rs 2 and Rs 5 lakh per annum to prepare and file returns by engaging various professionals. In a way, GST has become a double liability for tax payers.
As far as complexity is concerned, I give you one instance. Suppose one buys almonds, cashew, walnuts and apricots, etc in order to pack it at his own level for Diwali gifting. The mere act of dispatching such packed boxes to his office in another state will result in higher taxes as tax rates are different on different items and inter-state dispatch becomes a new supply requiring payment of higher tax on the entire supply.
It is said that the Modi government took benefit during the Gujarat Assembly elections by slashing tax rates on certain items. Do you think the objective behind cutting the tax rates was political?
It is a fact that before the Gujarat Assembly elections, the GST rate on many items were slashed to from higher tax brackets to lower, the most significant being textile yarn that was brought down from 18 per cent to 12 per cent. There was a lot of resentment among traders, besides textile industry in Gujarat because GST had hit this sector severely and the economy had slowed down. Sensing the anger of traders and the probable fallout on the Assembly elections there, the Council was persuaded to cut the rates on a substantial number of items.
But I may tell you that in the GST Council, we have tried to keep GST affairs above politics keeping in view of national interest.