The Goods and Services Tax (GST), designated to unify the country into a single market has been under the consideration of the ruling parties and financial experts for more than a decade. The historic overhaul of the existing tax legislation was carried out at a special midnight session of Parliament.
GST has been introduced through an amendment bill to the existing taxation regime. The biggest achievement that the sponsors of the new taxation system are entitled to is that of building consensus among the 29 states of the country. Most of the States had many apprehensions and doubts and were hesitant to give their approval in early stages. It is through prolonged and detailed debate and discussion and weighing the pros and cons of the new taxation regime that a consensus of opinion developed and India has now joined the modern world of taxation system which many western countries have introduced much early. The main contentious issue was that the states did not want to lose on introduction of new taxation system and the Finance Minster has tried to remove their apprehensions.
Now the question is of initial hiccups likely to happen when practical implementation is taken in hand. As we see, businesses have been asking for more time to implement changes, worried that they are not ready for the move to the new system. Many do not even have a computer to register on the GST network. Nevertheless, media has observed that no country of comparable size and complexity has attempted a tax reform of this scale. Under the new system, goods and services will be taxed under four basic rates – 5%, 12% 18% and 28%. Some items like vegetables and milk have been exempted from GST, but will still be subject to existing taxes. The price of most goods and services are expected to increase in the immediate aftermath of the tax. Analysts expect economic growth to slow down over the next few months, but say it should pick up after the tax is fully implemented.
It is pertinent to know what was the fundamental objection of some non-responsive states or political parties to the passage of the Constitution Amendment Bill? They had strongly contended that India has a federal system and the amendment bill poses a serious threat to the federalism of the country. B R Ambedkar had even opposed an amendment to put a ceiling on the Sales Tax to be levied by States. His view was that at least one important source of revenue with the States should be left to them, hence the argument that sales tax should be the domain of States. That would have naturally given the States the freedom of fixing the tax rate.
It is on this count that objections like GST means death of federalism. State or that States will have to come with a begging bowl to the Centre frequently and will be at the mercy of the centre. They went to the extent of accusing the Modi Government that the danger of India moving to Presidential rule was inherent in the Constitution Amendment Bill.
However, no less a person than the President categorically dispelled these fears in his formal speech at the stroke of twelve in the night on July 1 from time GST becomes operative. His words have special significance because as he said he had been very deeply associated with the entire gamut of taxation reform when he was the Finance Minister. The fact that Indian federalism is not threatened but strengthened by the passage of the bill because it took more than a decade of cool and considered debate on the pros and cons of the new taxation regime. He had met with the Finance Ministers of States no fewer than 16 times to convince them of the usefulness of the GST and to remove their doubts. What more meaning can we adduce to federalism than allowing a national issue to take more than a decade for discussions?
At the end of the day, it is in the interests of all States including Jammu & Kashmir to implement the GST in the best way they can. Despite opposition from certain quarters, the State Government needs to ensure passage of GST Act in the forthcoming Assembly session on July 4, therefore paving way for integration of the State with the GST regime. GST promises transparency and minimizing the chances of tax avoiding. This step is a strong guarantee to the growth of economy and improvement of the quality of life. Indeed it is the ushering in of a new era in taxation regime.
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