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GST and federalism: Some questions BJP must answer

The GST Bill will ring the death bell of federalism in India.

Written by K N Balagopal |
Updated: August 3, 2016 8:41:28 am
Gst bill, gst bill in parliament, gst bill in rajya sabha, goods and services tax, arun jaitley, finance minister, congress on gst, Congress, india news Prime Minister Narendra Modi, flanked by his ministers, arrives at Parliament. (File photo)

The Constitution Amendment Bill to create a uniform Goods and Services Tax regime is under consideration for about a decade now. The corporates, the Centre, some state governments, some political parties and some media organisations think this Bill is a panacea for growth. The BJP-led government accuses the Opposition of not allowing the Bill to be passed in Parliament. But all these groups are carefully forgetting one thing — why the Bill was delayed for so long? The reason is that this Constitution Amendment Bill makes serious threat to the essence of our Constitution, which is federalism.

In the Constituent Assembly debates, maintaining his position that the States (then provinces) have the right to collect Sales Tax according to their necessities, B R Ambedkar even opposed an amendment to put a ceiling on the Sales Tax to be levied by provinces. He said while a large number of resources “on which the Provinces depend have been concentrated in the Centre”, it is desirable “at least to leave one important source of revenue with the Provinces”. “Therefore, I think that the proposal to leave the sales tax in the hands of the Provinces, from that point of view, is a very Justifiable thing,” he said replying to a debate on the issue in Constituent Assembly.

He rejected an amendment that the power of the provinces to levy the sales tax should not be “free and unfettered” and that there should be a ceiling fixed by Parliament and said: “It seems to me that if we permit the sales tax to be levied by the provinces, then the provinces must be free to adjust the rate of the sales tax to the changing situation of the province, and, therefore, a ceiling from the Centre would be a great handicap in the working of the sales tax.”

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The GST Bill is against this principle of our Constitution. It will ring the death bell of the federalism in India. Without federal powers to decide taxes according to their necessities, States will have to come with a begging bowl to the Centre frequently. This will in turn start the process for a Presidential or an authoritarian rule of the Centre as is being envisaged by the BJP and its ideological fountainhead, the Sangh Parivar.

This Bill subsumes State Value Added Tax/Sales Tax, Entertainment Tax (other than the tax levied by the local bodies), Central Sales Tax (levied by the Centre and collected by the States), Octroi and Entry tax, Purchase Tax, Luxury tax, Taxes on lottery, betting and gambling; and State cesses and surcharges in so far as they relate to supply of goods and services. In short, not just State governments, but local bodies will be affected by the GST proposal.

The revenue collection in 2014-15 on octroi in Mumbai Corporation was somewhere around Rs 6,733 crores which is individually around 42 per cent of the entire finance generated there. This matter has been pointed out in the report submitted by the select committee on the GST Bill. If the Centre wants to take that away, how development in that city can be ensured?

Also read | GST, explained

Taxation powers cannot be viewed only as a measure of resource mobilisation. It could be used as a tool to control and restrict the consumption of some goods for social good. For example, Tobacco products generally attracts huge tax rate as a measure to control the consumption on health grounds. Here tobacco producing States argue for lesser taxes for maximum sales and the Consumer States will demand for a leverage for fixing higher taxes. Health concerns ratify the higher rate of tax on tobacco. Whose interest the Centre will protect, when the regime of uniform tax rate comes? Likewise If a state government needs an additional resource mobilisation for facing a natural calamity, it cannot decide for any special levy. Swachabharat and other Central schemes can only be decided and used by the Central Government.

“Make in India” Programme is focused for strengthening and protecting the domestic industry from foreign import. Likewise, state governments have to protect local industry and employment. For this objective lesser sales tax and other incentives is needed for helping local producers. But the right of state governments for variable taxation will end with the introduction of GST regime.

The Left parties have been asking both the UPA and the NDA governments to bring clarity on the issue of protecting federal rights. The Centre has an undemocratic veto power in the proposed GST Council. The pleas to make distinction amongst the states in weightage is not being heard. The weightage of the vote of the Centre should be reduced and that of the states should be increased to ensure federal balance.

The GST will take away the rights of states to decide taxes according to their socio-economic situations. If passed, this may create a Grexit or Brexit like situation in India, too.

The situation in Kerala is quite different than the situation in Tamil Nadu or Assam or Bihar or West Bengal. Each state has its own socio-economic-political reasons to decide the type of tax to be levied. The Centre is in no hurry to decide a better uniform minimum wages for the workers in this country despite a long-standing demand by the trade unions. But to please its corporate masters, both the BJP and the Congress want this Bill to be passed. This Bill will set a dangerous trend against the federalism in this country.

Balagopal is a former CPM Rajya Sabha MP and was member of Select Committee of Rajya Sabha on the GST Bill. Views expressed are personal

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