02/12/2015 12:16 AM IST | Updated 15/07/2016 8:25 AM IST

6 Questions About The GST You Were Too Embarrassed To Ask

Hindustan Times via Getty Images
NEW DELHI, INDIA - DECEMBER 26: Union Finance Minister Arun Jaitley arrives to attend the Pre Budget meeting with the State Finance Ministers at Hotel Ashok on December 26, 2014 in New Delhi, India. Finance Minister said that his counterparts in all states favour an early roll-out of the goods and services (GST) bill. (Photo by Vipin Kumar/Hindustan Times via Getty Images)

Why is the GST, or Goods and Services Tax Bill, such a big deal?

India is a republic and a single country. Commercially, however, it is akin to a collection of contiguous countries with varying tax rates and tax heads. By the time a teakwood-almirah is made in Kerala and say, trucked to Kashmir, it must pass through multiple checkpoints, obtain different permits and pay myriad taxes in all the states en-route. Not only does this impede business, it also breeds--and perpetuates-- bribery and arbitrariness and, as has been the experience over the years, loss to the exchequer. Finance ministers and experts in both regimes--the UPA and the BJP--have gone on record to state that a proper GST will add 2% to India's GDP.

What are the key proposals in the GST Bill ?

There will be a Lord-of-The-Rings-like tax, called GST, subsuming central excise duty, service tax, additional duties of excise, additional and special additional duties of customs, Central surcharges and cesses as also state taxes such as VAT, sales tax, entertainment tax and entry tax not levied by local bodies, luxury tax, taxes on lottery, betting and gambling, tax on advertisements and state surcharges and related levies.

Also, rather than taxes being the purview of either the Centre or the States the power will rest, according to the new legislation, with an empowered GST council, to be headed by the Finance Minister, who will decide which taxes ought to be in the purview of states and which can be subsumed into the GST. Two thirds of this Council, as the proposal stands, will be made up of representatives from the states.

This is a no brainer. Why should anyone object to this obviously-more-efficient proposal?

At its essence, the GST diminishes the power of various states to tax and earn revenues. Also, as is well known, states such as Gujarat and Maharashtra are richer, have more industry and therefore earn more than many other states from these taxes. Were the Centre to impose a flat rate, they will be forced to register a relative dive in their revenues. When it comes to money, socialism and sharing seems less appealing to states.

The years preceding, and following, the introduction of the GST Bill in Parliament in 2011 by the UPA, have revolved around getting states to agree on a compromise. There is also a political dimension. Narendra Modi, as chief minister of Gujarat, opposed the GST and now as Prime Minister is bent on passing the Bill. It stands to reason that the United Progressive Alliance government wouldn't want the incumbent government to take ALL the credit for passing, what would be, a historic economic reform rake up the huge brownie points, which can be tom-tomed during every forthcoming election.)

And how exactly is the Bill being blocked, if Modi has a majority in Parliament?

The Modi government doesn't have a majority in the Rajya Sabha, or the Upper House. To pass a legislation such as the GST one requires a two-thirds majority. With Rajya Sabha significantly represented by non-BJP states, it is here that the government faces its toughest opposition.

More substantitatively, the Opposition has asked the government to clarify the following:

a) What will be the tax rate and will there be a specific number spelt out in the legislation?

b) Will their be taxes outside the purview of the GST?

c) Is the necessary information-technology infrastructure in place to make GST workable?

d) For the first few years after the GST comes into effect, states will be allowed to charge an inter-state levy. What are these rates and doesn't this destroy the essence of the GST, which is to not allow states to collect extra, arbitrary taxes?

Bargaining also has worked. Over the years, taxes on liquor and special cesses for manufacturing states have managed to wiggle out of the GST-framework and this has been because of the influence and lobbying of states.

These points of contention were present in the previous, wiped-out Monsoon session. Why should the Winter Session be any different?

Indeed. Days before the Winter Session began last week, Finance Minister Arun Jaitley told industry leaders that some of the Opposition demands went against the "GST architecture."

Thus, were a fixed tax rate to be specified in the legislation, changing it in the future would require all the formalities of gleaning the consensus of a two-thirds majority. This vastly infringed on the autonomy of states, he argued. Moreover, the burning issue in Parliament is still intolerance. Though the level of debate has been more promising and civilized than previous sessions, there is no saying when the peace will break and be overwhelmed by the trifecta of adjournments, walk-outs and washout.

Still, however, PM Modi and his top brass have appeared far more conciliatory. They've reached out to Sonia Gandhi and made the right noises about working with the Opposition to move legislation forward. The Prime Minister also met the BJP parliamentary party executive, which was followed by an all-party meeting convened by Lok Sabha Speaker Sumitra Mahajan. Parliamentary Affairs minister, Venkaiah Naidu has also said that he would “speak to all Opposition leaders”.

Say the House reaches an agreement. What will change on April 2016, when the provisions of the Bill are supposed to come into effect ?

Do not, on April Fools Day, expect to wake up to a new morning of simplified restaurant bills. What is in Parliament now is only a proposed amendment to the Constitution and the plea to introduce a new Article. The nut and bolts stuff, such as the GST rules and regulations, can be specified only after an agreement is arrived on. If the House can unanimously pass the Bill during the session, there is a chance that the rules and regulations can be framed but matters, such as the requisite technical infrastructure and popularizing the concept of GST for the layman, are still huge, time-consuming administrative challenges.

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