There is now a good chance that arguably the most significant tax reform of our times — which had eluded the government for want of cooperation, chiefly from the BJP, the main Opposition party which runs a number of state governments — could soon be a reality. The idea of a Goods and Services Tax (GST) for India had been conceived by the NDA government led by Atal Behari Vajpayee, but the party began to obstruct implementation of its own original plan when the UPA government wished to take the matter forward. Some said the BJP’s opposition stemmed from pique. The party never did outline its concerns in any coherent fashion, but took shelter behind the argument advanced by some that states would lose their share of tax revenues if the GST was brought into being. Fortunately, the BJP’s adversarial stance has given way to one of cooperation. The party has permitted the Centre’s request to let Sushil Kumar Modi, its finance minister in the Nitish Kumar-led Bihar government, chair the Union finance ministry’s empowered group that would process the case of the GST. On Monday, Mr Modi was duly elected chairman of the group whose members are the state finance ministers, succeeding former West Bengal finance minister Asim Dasgupta of the erstwhile Left Front government, who bowed out after the Left’s defeat in the recent Assembly election. Does the change in the BJP position amount to the possibility of greater cooperation between the ruling coalition and the Opposition in Parliament? Probably not. India is a complex country politically, and there are too many areas of possible dissonance — at the national as well as local levels — that divide parties. But acquiescing by the BJP is likely to make the passage of the Constitution amendment bill on the GST in Parliament easier. If the UPA and NDA-run states cooperate, probably we should have the tax reform measure out of the way sooner rather than later.
The GST is a more comprehensive version of the value added tax (VAT). It subsumes all taxes levied by the Centre and the states. Its introduction will be a major tax reform that is expected to confer advantages all around. It is expected to eliminate the cascading effect of some taxes where products are often taxed twice. It should also bring down the quantum of tax, make items of daily consumption cheaper and impart a competitive edge to many of our exports by making them cheaper. GST has already been introduced in many countries. Its introduction in this country was held up primarily because several states offered the argument that state revenues would diminish if the GST came into being. State governments levy some of their own tax, and get a share of tax collections made by the Centre under a specified formula. The argument of the GST causing losses to states will now be undercut with the BJP coming on board. State governments today impose multiple taxes such as VAT/sales tax, entry tax/octroi, entertainment tax, lottery tax, luxury tax, tax on gambling, and certain other forms of cess and surcharge. The Centre imposes excise duty, additional excise duty, service tax, additional customs duty or countervailing duty, special additional duty, and surcharge and cess under some other heads. All these are intended to be brought under a comprehensive GST.
It has been sometimes said that ruling and Opposition parties — for all their many differences which are natural to expect in a diverse democracy such as ours — should come together at least to promote policy that is for the wider economic good of the country. The GST issue meets that definition.
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