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Journalism of Courage
Union Finance Minister Pranab Mukherjee,in a meeting with West Bengal Finance Minister Asim Dasgupta and other members of the empowered committee of state finance ministers on Wednesday,announced what he believed the structure of the rollout of the goods and services tax,or GST,should be. Its more complex than most would like: for a couple of years,starting from April 2011,two levels of taxes on goods are proposed; there will be no single GST before,at best,2014. Even then,at least 100 products are exempted. The states finance ministers now have to take a look at the structure and sign off on it. Several will be unhappy; Uttarakhand,MP and Karnataka interestingly,all BJP-ruled states have consistently demanded higher initial tax rates.
There will be legitimate concerns that,even so,the Central government has given away too much in its proposal. The idea behind a uniform GST what Kelkar,in his report on the subject,called flawless is to cut down on exemptions and loopholes,raise compliance,and increase efficiency. Kelkars own estimate is that it could boost GDP by as much as a couple of percentage points. Diluting that idea is deeply problematic; even a minuscule flaw could,like a leak in a dam,impact effectiveness disproportionately. Yes,getting the GST done requires consensus from the states,which leaves the final structure hostage to irrational holdouts. But it is not as if the Centre has nothing to offer but sweet persuasion; states,till now,dont tax services,and the prospect of income from service taxes could have been used to nudge them towards more comprehensive reform. Has enough been done to push a grand bargain? This new plan does not,for example,clearly lay out a unified structure for tax administration.
