• P. Chidambaram, MP

GST celebrates its 5th birthday. There is nothing really to celebrate. GST had serious birth defects. In the last five years, these defects have only become worse and all those touched by GST have been seriously injured; None more than the common people who consume goods and services and pay exorbitant taxes without knowing why the government has imposed the crushing tax burden upon them.

At the outset, the Congress Party wishes to make it absolutely clear that the so-called GST that is in force today was not the GST envisaged by the UPA government. I had made it clear on the floor of Parliament and elsewhere that the GST of our conception was a single, low rate across all goods and services with few exemptions. There could be a small + or a small - to the single rate in a few cases during the transition period.

We may remind you that the current GST law was passed against the express advice of the then Chief Economic Adviser whose recommendations were contained in an official publication titled ‘Towards a Revenue Neutral Rate’.

Flawed GST

The GST that we have today is a complex web of many rates, conditions, exceptions and exemptions that will leave even an informed tax payer completely bewildered. Not all registered dealers are informed taxpayers. As a result, they are at the mercy of the tax-collector.

Currently, there are six rates   0.25, 3, 5, 12, 18 and 28 per cent. Besides, there are zero rated and exempted goods. Every tweak of the tax rates is another twist of the knife in the deep wounds of small businesses. After 5 years of GST, there is no rationalisation in the number of returns to be filed. Compliance with e-way bill and e-invoicing is no simpler. Various provisions of the GST laws have still not been implemented and, instead, the government has resorted to stop-gap or “temporary” arrangements, some of which have lasted 5 years. Claiming refunds is a nightmare and thousands of cases are being litigated in the Courts. Adding to these woes is the recurrence of technical glitches that have not been sorted out even after 5 years.

The law is so defective, that the government has been forced to issue hundreds of executive directions. In five years, the government has issued 869 notifications, 143 circulars and 38 orders! That is a change every second day! This is a GST that is flawed, defective and unstable.

Destruction of MSMEs

A flawed GST has led to large-scale destruction of the MSMEs, a sector that contributes up to 90% of the jobs in the manufacturing sector. Many small units have simply gone out of business. Small businesses that are not either registered or not required to be registered under GST have been cut out of the supply chain. Demonetisation along with a flawed GST have put an end to thousands of small businesses and, with their exit, lakhs of jobs have also perished. The only beneficiaries of the flawed GST are big businesses, chartered accountants and tax lawyers. The costs have far outweighed any gains.

Betrayal of States

The worst consequence has been the complete breakdown of trust between the Centre and the States.VAT earlier and GST later were introduced on the basis of mutual trust and to promote cooperative federalism. But the manner in which the GST laws were passed and, worse, the manner in which they are being administered have deepened the distrust between the Centre and the States. There is no real consensus in the meetings of the GST Council. The skewed formula on voting rights of the Centre and the States has been used by the Centre to push through decisions that are bitterly opposed by the States including, privately, by BJP-ruled States. The holding back of the arrears of Compensation Cess and the excessive resort to cesses (rather than shareable taxes) has increased the chasm between the two sides.

Despite the promise in 2017, no State has achieved an annual revenue growth of 14 per cent. The States have filled the gap through the Compensation Cess but, in two years, owing to a shortfall in the Compensation Cess, the gap was filled through a back-to-back loan. The States were forced to accept the arrangement against their will, further deepening the distrust and adding to the State’s debt burden. The delaying of fiscal transfers to the States during the Covid-19 pandemic, when they needed it the most, came as a shock.

The States, collectively, have felt betrayed by the Centre and several finance ministers have expressed their regret and anguish publicly. Some of them have gone to the extent of demanding a re-think on GST.

But this will depend upon the intent of the government. The government must call an All-party meeting, listen to all the parties, especially the non-BJP Party’s finance ministers and amend the GST laws and substantially modify the manner in which the GST law is being administered.

Now, we are ready to give suggestions at such a meeting. But, whether such a meeting will be called, I have my grave doubts, but they believe that what they did was right, what they are doing is right and what they will do is going to be right. They can never do any wrong, but on the ground, you will find small businesses are the most affected and this is not only our view. Only today, Dr. Arvind Subramanian has penned an article on the 5th year of the GST and he has pointed out all the draw backs of the GST that has been implemented today. One of the most damaging comments he makes, is- “Not everyone anticipated how centralizing the government become more broadly which vitiated the trust between the Centre and the States”.

Now, that is not the only damaging comment. There are several such comments in his short article today and he is the author or so called author of the GST idea after the NDA government came into office.

Towards GST 2.0

In the final analysis, the GST laws and the manner of their implementation have wrecked the economy. As far as the Congress Party is concerned, we reject the current GST and, as promised in the Election Manifesto of 2019, we will work towards the replacement of the current GST by GST 2.0 that will be a single, low rate. Further, we will administer the law in a manner that the GST revenues will be shared fairly and equitably between the Centre and the States and in a manner that will promote the growth of business, especially small businesses, and bring back the lost jobs.

Based on the Press Briefing