Single market

The country may be closer to the much-needed reform in its indirect tax system with the introduction of the 115th Constitution amendment bill on a goods and services tax (GST) in the Lok Sabha. That the government has been able to finalise a legislative framework for the GST is itself an indication of its confidence in winning support for the measure. The case for a GST has not been in doubt and the opposition to it from the states had more to do with the details than with the idea itself. Though politics also has played some part, the major problems related to the states’ genuine fears about loss of their fiscal autonomy in the new dispensation. These concerns seem to have been addressed now.

According to the earlier versions of the bill, the union finance minister had a decisive say on the GST rates through a power of veto in the GST council which he would preside over. This would have tilted the balance of power in the council in favour of the Centre and was against the federal spirit of the system, that too in an area as crucial as taxation. The Centre has now made a climb-down and agreed that the decisions shall be taken by consensus. This in fact might create practical difficulties in future, but is better than investing all power in a single central authority.  Since petroleum products and alcohol have been exempted from the purview of the GST,  states will also retain a major taxation power. The Centre in any case did not have other options as a refusal to  remove the states’ apprehensions would have meant that the GST regime would not be possible at all. This is because the enabling constitutional amendment cannot come into effect without the support of at least 15 states.

The GST system is expected to turn the country into a single market and simplify the present tax system. It may be the biggest tax revolution since independence. The benefits to industry, trade and consumers will be very large and the economy will get a major boost. The proposal was first announced by the government four years ago and it has missed many deadlines. More work needs to be done if the latest deadline of April 2012 is to be met.

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