Home Economy and Finance How the Government swung the GST Act around

How the Government swung the GST Act around

It has taken 15-odd long years for the GST Bill to finally winding its way into the Parliament. In 2000, Vajpayee, the then PM, had initiated the discussion on GST by setting up an empowered committee. Then during the UPA-1, Chidambaram announced that GST would roll out from 1st April 2010. But we all know that it didn’t make that deadline. GST needed all the States and the Centre to be on one common understanding since it is a tax reform which moots uniform Indirect Taxation all over India. Of course, UPA  failed to get develop any sort of consensus, even after being in power for 10 years. Then how did a BJP government manage to achieve this within 10 months?

Some “Journalists” would like you to believe this: When UPA was ruling, BJP states played politics and opposed the GST Bill, and now that a BJP Government has been installed at the centre, all BJP states have agreed to the Centre and have compromised.

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Well, a little bit of fact-finding will make it clear that nothing of this sort happened. Till the last discussion of GST under UPA, the states had some major demands:

1. Keeping Petroleum out of GST ambit
2. Keeping Alcohol out of GST ambit
3. Keeping Entry Tax out of GST ambit
4. Some sort of guarantee from Centre for potential revenue loss

Some of these demands were made by BJP states too, including the Gujarat Government then ruled by Modi and the Madhya Pradesh Government. So if we believe these journos, did the states take back these demands? No. They continued with the same demands. Then how did the Centre arrive at a consensus?

The BJP Government was desperate to get GST out as soon as possible. They understood that this single reform could kick-start the Indian economy. Already 120+ countries have adopted GST, so India is already far too late. And the BJP Government didn’t want to delay it further. So, it decided to accept some of the demands of the state, and give them some comfort, so that they can agree with the centre at other places. Out of the above 4 demands, 3 were accepted, and a bonus benefit was passed on to the state:

1. Petroleum was kept out of GST
2. Alcohol was kept out of GST
3. A proposal was sent to the law ministry to work out a “Constitutional Guarantee” to compensate states
4. And the Bonus: The power to states of levying an additional 1% tax levy, for maximum 2 years, to help augment state revenues

In exchange for this, the Centre convinced the states to allow Entry Tax to be subsumed into the GST ambit.
From this, it should be clear that GST was achieved not because BJP states bowed to a BJP centre, but because the Centre was genuinely focused on allaying the fears of States.

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