One nation one tax, a landmark start

The NDA government must be given credit for doggedly pursuing the idea of one nation one tax and the entire political spectrum needs to be hailed for finally delivering a difficult constitutional amendment paving the way for Goods and Services Tax (GST), rightly positioned as the most progressive tax reforms for the country since independence. The way the Congress came around and extended support to `its own bill’ and the backing up by almost all the parties, has sent the message loud and clear that India’s body politic can deliver despite a fractured mandate in different states. The community of global investors has certainly taken note of it. The maturity of the political establishment was evident by a high standard of debate in the Rajya Sabha which approved the amendment with unanimity, notwithstanding a walkout by the AIADMK. The walkout by MPs from the Tamil Nadu ruling party appeared part of a tacit support for the GST from Chief Minister J Jayalalithaa, though she had her own grouse against losing fiscal space. While the Congress could not obtain an assurance from Finance  Minister Arun Jaitley on the ensuing enabling GST bills not being brought as money bills, the NDA may not like to squander away the goodwill it has generated among the major parties so soon since the implementation of the new tax regime has to be smooth in states, including those ruled by the Congress.

Jaitley and his officers would like to roll out the GST from April 2017, and all efforts would be made to get ratifications of at least 16 state assemblies within the next month. Thankfully, with the help of some proactive approach by most of the state finance ministers and their officials, a lot of spade work has already been done with regard to the IT backbone which would be further speeded up even as the legal framework is being set right on a parallel track.

At this point of time, expectations are high on plucking the gains from the GST, which would surely come about in the reduced taxes in a vast array of manufactured goods as the standard GST rate would be far below the combined incidence of excise and state taxes like VAT. For services like telecom, banking, insurance, software etc, the key lies in fixing the right kind of Revenue Neutral Rate (RNR) which should be well below 18%, though several states may not be comfortable with it. While the teething troubles cannot be ruled out despite petroleum and alcohol being out of the GST, a landmark beginning has certainly been made. That is commendable, for sure.