Asim Dasgupta, who was Finance Minister of West Bengal for 24 years, was probably the only CPI(M) member who attended Saturday’s event at the Central Hall of Parliament, on the eve of the GST’s launch. In fact, Dasgupta was Chairman of the Empowered Group of State Finance Ministers which prepared the first formulation of GST laws in 2009.
He spoke to BusinessLine on the new indirect tax regime, and differed with his party on issues such as infringement of the right of States, and possible inflation. Excerpts:
When we [State Finance Ministers] had worked out the GST framework way back in 2009 with the help of (economist) Parthasarathi Shome, I happened to be the Chairman of the Empowered Group of State Finance Ministers. In that formulation, we mentioned that there has to be a Constitutional amendment that the States can get the powers to levy service tax. Therefore, we needed two legislations, Central GST and the State GST. Then there is the need for an Integrated GST for transfer of goods from one State to another. IGST removes all check-posts throughout the country.
There are two issues on which I think there is scope for improvement. First, we didn’t ask for so many rates. We asked for an exempted category, lower rate and general category.
On value added tax (VAT), in the Empowered Committee, after repeated discussions we could reduce some 16-17 rates and compact it to a few. Here, I find so many rates. Why can’t the Central excise be reduced to smaller number of rates?
The second issue is related to the preparedness of traders. At least 50 per cent of our traders do not know the complications of this.
They do not have access to computers. It is very important that States help them in training.
Will GST create inflation?
Not necessarily. One should not rush to any conclusions. Just by looking at the rate, one would not get an idea of what will happen. Because certain taxes, like the entry tax, are going away.
Entry tax was always inflationary. The industrial sales tax of two per cent has become zero. Input tax credit will become more comprehensive now. There will be more deductions.
So, it is not proper to rush to conclusions. I find that they have enacted an anti-profiteering law. I hope it is implemented.
How good will GST be for the economy? Also, how do you look at criticism that GST is against federalism and will help only a handful of corporate houses?
As far as the economy is concerned, it is a step forward in the regime of indirect taxation.
There are several taxes that were outside VAT — some eight, nine taxes. Similarly, there were State-level taxes, such as the entry tax and luxury tax.
Those are an additional burden. People sometime do not know what they are paying. So, if all these can be subsumed in one tax, that would help both the Centre and States. The States never had the power to levy Service Tax. States have been asking from the very beginning for the power to levy Service Tax, and not simply [get] a share of it. With GST, that has been brought in.
The Empowered Committee has been taking a firm stand on the autonomy of States. The GST Council, incidentally, is a recommendatory body to Parliament for Central GST and to Assemblies for the State GST. Technically, the legislature may or may not accept it. So, this power of the legislature has not been taken away.
As far as the rates are concerned, States and the Centre together are accepting a kind of single tax for both.
So, in a sense, there is a partial sacrifice of States and the Centre in the interest of cooperative federalism.
GST is giving additional powers to the State in terms of service tax. Half of State domestic product is services.
If the rates are properly calculated, it is important that these are revenue neutral.
Any tax regime should be beneficial to consumers, traders and also to the State.