Cong holds the key

In 2000, when the then prime minister Atal Bihari Vajpayee mooted the idea of Goods and Services Tax (GST) as an alternative to the indirect tax regime, little had he thought that even a decade and a half later it would still remain a dream.

The “revolutionary” change in the indirect tax structure had initially triggered apprehensions among state governments of a possible loss of revenue and later literally become a political football match between the Congress and the BJP.

Setting the tone for bipartisan consensus, Vajpayee had the foresight to ask a finance minister from the then Left Front-ruled West Bengal, Asim Dasgupta, to lead the panel exploring the possibility of ushering in the GST. The convention has continued till date with Kerala finance minister K M Mani heading the Empowered Committee on GST, till his resignation under a cloud of controversy last month. Though the tradition of having an Opposition leader at the helm of the empowered committee is expected to continue, the fact remains that a final call on the tax reform now remains hostage to an ego battle between the top leadership of the Congress and the BJP.

The GST ride has been bumpy ever since the then finance minister P Chidambaram set the goal in his Budget Speech of 2006-07 to roll out the indirect tax reform from April 1, 2010. Fresh from the tumultuous period of the roll out of the Value Added Tax, state governments were apprehensive of the Centre taking over their rights of levying indirect taxes, such as entertainment tax, sales tax, luxury tax, entry tax and purchase tax.

On expected lines, several state governments complained that the new regime would snatch their rights to levy taxes and would affect the federal structure of the Constitution. Dissatisfied over the revenue sharing experience of the Central Sales Tax, states such as Madhya Pradesh continued to oppose GST till last year. Other state governments had also voiced concerns over the inclusion of items such as coal, alcohol and petroleum products within the ambit of the GST. Also, some wanted the Centre to implement the Central GST, covering taxes levied by the Centre, to begin with. States will roll out State GST based on the Centre’s experience, they argued.

Narendra Modi as chief minister of Gujarat had opposed the GST contending it would lead to a revenue loss to states with a strong manufacturing base, including Maharashtra, Tamil Nadu and Karnataka. Modi’s dogged opposition made the Congress wonder whether it was linked to some political exigencies involving his close aide Amit Shah, whose alleged role in a fake encounter case was the subject of the Supreme Court-monitored CBI probe.

After storming to power, Prime Minister Modi took it upon himself to create a uniform national market with a single indirect tax structure. He ensured that the concerns raised by the BJP during the previous regime were addressed and sweetened the deal for the manufacturing states, including his home state of Gujarat, by allowing them to levy 1 per cent additional tax over and above the GST.

Also, contentious items such as electricity, alcohol and petroleum products were to be kept outside the purview of the GST, thus enabling states to levy taxes on these products and services.

The new provisions in the Constitution (122nd) Amendment Bill introduced by Finance Minister Arun Jaitley in December last year reflected these changes.

The red line

The Congress, now in the Opposition, saw red and decided to oppose these provisions. Chidambaram drew the red line – cap the GST rate at 18 per cent, abolish 1 per cent additional tax and a mechanism to resolve disputes that may arise after the GST has been rolled out.

Initially, Jaitley dubbed these conditions as an “afterthought”. However, with Congress president Sonia Gandhi and former prime minister Manmohan Singh, during a meeting with Modi, stating these three points as “non-negotiables”, the NDA government was forced to go back to the drafting board.

Though some senior Congress leaders view the GST as their baby and feel the legislation should be passed, Congress vice-president Rahul Gandhi appears to be in no mood to give in easily. The Congress is upset at the high-handed approach adopted by the Modi government, particularly the running down of their leaders by the prime minister and his team.

The government is also working to get other parties on board. Among the fence sitters, the Bahujan Samaj Party and the Janata Dal (United) have already declared their support, while the Biju Janata Dal may press for amendments, the party may still go with the majority view. The Samajwadi Party-led Uttar Pradesh government has voiced fresh concern, but it could be brought on board by offering higher compensation. The tough nut has been Tamil Nadu Chief Minister Jayalalitha, who is keeping the cards close to her chest.

With Sonia expected to be back next week after a brief visit to the US, the discussion between the government and the opposition is expected to pick up, giving the NDA a glimmer of hope of a positive outcome.