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A reform at risk (thehindu)

Finance Minister Arun Jaitley is keeping his fingers crossed about sticking to the April 1, 2017 target to implement the Goods and Services Tax regime. The GST Council he heads meets again on December 11-12 to try to reach a consensus on three pieces of legislation that need to be cleared by Parliament in this session for a rollout in April. In its previous three meetings, the Council failed to resolve an impasse between the States and the Centre on who would have administrative control over taxpayers in the new tax regime. The Finance Ministry has proposed a dual control model where both vertically split the taxpayer base for administrative purposes. But States including West Bengal, Kerala and Uttar Pradesh are keen to retain control over all goods and services providers with an annual turnover of less than Rs.1.5 crore. At the last meeting, the States hardened their position by flagging the loss of revenue on account of the demonetisation of high value currency notes.

While the Council is yet to discuss the legislation that deals with compensation for loss of revenue, it has gone over nine chapters each of the two other proposed laws that Parliament needs to pass to ring in the GST, including the model GST law. For a rapprochement with States on these bills, the Centre may have to be more generous in responding to their demands. It could also resort to a vote for the first time in the Council instead of seeking to forge unanimous decisions. Parliament is expected to function for just three days next week. Unless its schedule is extended, with the currency crisis stalling proceedings so far, the GST’s April timeline is looking increasingly tricky. It is true that the government is likely to push the three GST bills as Money bills, so they only need a Lok Sabha nod, and the GST regime can kick in as late as September 2017. But implementing such a big-ticket tax reform without bringing all States on board or getting the new regime going in the middle of a financial year would inspire less confidence than otherwise. It would also be a headache for industry as well as the taxman. Opposition-ruled States, on their part, must resist the temptation to derail the tax reform, and work to ensure that the fine print actually boosts investor sentiment. For instance, there is a proposal to set up an anti-profiteering authority that could penalise businesses if they are deemed to have not transmitted GST benefits to consumers. Just as States should compete for investment, businesses should be allowed to compete freely. Suggesting that the profit motive itself is evil would undo the fundamental intent of the GST, which is to remove the space fo r discretion and rent-seeking.
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