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Legislatures should cede sovereignty to GST Council
The Hindu Businessline, April 07, 2017

Former FM Chidambaram says this is a case of shared sovereignty; feels govt will need to amend the ‘imperfect’ GST Bill in 18 months

Former Prime Minister Manmohan Singh and his Finance Minister P Chidambaram prevailed on their colleague Jairam Ramesh not to press an amendment to the GST Bills in the Rajya Sabha. Chidambaram explained to BusinessLine why it is necessary to ensure, in principle, that Parliament or the State legislatures do not interpose in the recommendation of tax rate by the GST Council. In the same breath, the former Finance Minister also maintained that the “imperfections” imply that the legislation will have to be amended within 18 months. Excerpts from the interview:

It transpires that you and Manmohan Singh prevailed on the Congress to not push the amendment that Jairam Ramesh was seeking. Can you explain the objective of the amendment, and why you intervened?

The only amendment which my colleague Jairam Ramesh proposed to move was intended not to block the Bill, but to assert Parliament’s right to approve the rates recommended by the GST Council before the Central government formally notifies them. The Bill as it stands says the GST Council will recommend and the Centre shall notify. The amendment interposed Parliament between the GST Council and the Centre. We pointed out that such a provision is present in the CGST, IGST and SGST Bills. If you interpose Parliament in the the CGST and IGST Bills, the States will also interpose the State legislature in the SGST Bill. And if one legislature of the 29 legislatures does not approve the rates, the rates recommended by the GST Council — the whole thing will unravel. Therefore, we said this is a case of shared sovereignty where Parliament and the State legislatures cede sovereignty to another Constitutional body, namely the GST Council. We are of the view that we should not interpose either Parliament or the State legislatures between the recommendations made by the GST Council.

This is the principle of ceded sovereignty. Once it is recommended by the GST Council, it should be binding. I think this is the correct principle which needs to be followed in the case of a tax which will be in the jurisdiction and administered by both the Centre and the States.

You and the Finance Minister seem to be in agreement over that. Is there similar consensus now on other issues the Congress has been raising?

We have many objections. I was only talking about the amendment. Let me reiterate that this is an imperfect Bill. Going forward, I have no doubts in my mind that the present government will feel the need to amend the Bill in about 18 months. If this government does not, I am sure the successor government, whichever party it may be, will have to amend the bill in 24 months.

There are many provisions that require to be redrafted or more precisely drafted. For example, the multi-rates this is not a one-rate bill. There are multiple rates that will eventually require to be converged from five to three, to finally one. I think there are amendments needed in the compliance provisions  returns, annexures, periodicity of the returns. Amendments will be required as we gain experience about implementing the tax; amendments will be required in the powers that are being given to the taxation officers. Once the government finds that excessive powers are being conferred, it itself may want to amend that. Section 171, the so called anti-profiteering section, has to be deleted; that will require an amendment. There is contradiction between making an offence non-bailable, while at the same time, making it compoundable. A compoundable and non-bailable offence are mutually contradictory. As we work this Bill, I am sure the government will find there are other sections that require to be amended.

But why not introduce them as amendments?

That will require further discussion, reference to a select committee, and I don’t think the government is prepared for that. Once the Lok Sabha has passed it, the Rajya Sabha is pretty much helpless in stalling it. Therefore, the more prudent course is to allow the Bill to go through, but enter the caveat that this Bill will require amendments.For what purpose would we introduce amendments? It is a Money Bill. Rajya Sabha amendments don’t carry any weight. It would have gone back to the Lok Sabha and it would still have passed the original Bill. Our objections are on the record. Our objections are warning bells to the government that as you implement the Bill, you will find the need to make changes.

Do you agree with the Left that these should not have been classified as Money Bills?

This is a Money Bill. There is no doubt about that. Any taxation Bill is a Money Bill. Please remember what I said when the GST Constitutional amendment was being debated — that the GST Bills will be Money Bills. But I urge you not bring it as Money Bills so that both Houses have an equal say in shaping the final Bill. The government had a choice. It had the right to bring it as a Money Bill. But a more statesmanlike approach would have been to not bring it as a Money Bill; get all the inputs, including those from the Rajya Sabha, and work out a Bill which meets the requirements of both the Houses. But I am not surprised at what this government has done. It was too much to expect of them. When non-money Bills are being brought as Money Bills, then it is perhaps too much to ask for a Money Bill to not be brought as a non-money Bill.

The Congress has raised the issue of tax slabs, exclusion of commodities. What are your other concerns?

We will have to wait and see what the rules and the fitments are. Our main concerns are rules, the compliance and enforcement provisions. There are thousands and thousands of goods and services. How are they going to fit each good and each service into a rate structure; we will just have to wait. If 70 per cent of the goods and 70 per cent of the services by value are fitted into the modal rate of 18 per cent, I would give high marks to the implementation. But if a very large proportion is fitted into the highest rate of 28 per cent, that will necessarily mean that an equally large number of goods have to be fitted into the lower rate of five per cent to compensate. All that will mean that we are moving away from the one-tax-one-nation principle. That will be known only when the fitments are done and known.

When we moved in service tax from a positive to a negative list, and brought within the ambit of service tax the whole universe, I called my officers and told them: “It is a new law, we are applying it to the whole universe of services. A lot of people don’t understand the service tax. A lot of them will not even know what they are doing is taxable. Therefore, administer the law in a benign manner for the first few years.” That is why, in terms of revenue, the service tax today is a success story. It is the fastest-growing tax. Likewise, this law must be administered in a benign hand so people get used to the idea of a GST. It will take time. If you apply the law with a harsh hand, there will be a backlash.

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