Looking back at one year of GST implementation, Kerala finance minister Thomas Isaac expresses disappointment on several fronts, particularly as it has not generated buoyant revenues as expected. In an interview, he tells Lola Nayar that the GST structure is not in tandem with cooperative federalism.
How do you see the progress in GST implementation over the last one year?
Overall, it has been a bit of a disappointment. We had big expectations of buoyant revenues, falling prices and improvement in ease of doing business, but none of this has really materialised. Revenues are not buoyant because there are terrible leakages. As the whole system is not in place today, even if you decide on the returns form, one doesn’t fully know if the annual returns will be enforced this year. There have been no gains to the consumer despite a very significant fall in the tax burden. Rarely have prices come down. And the anti-profiteering mechanism to protect consumers has not been very effective.
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Going ahead, do you see the state revenues going up or getting hit? Has there been better compliance?
Conceptually, if effectively implemented, revenue should become buoyant and leakages should come down—but it has been very badly implemented. The IT backbone is not yet ready; the failure on that count is the biggest. Second, there have been many knee-jerk reactions regarding rate fixing, reduction in the rate, even attempts to allow incentive taxes to input credit to some sectors. If allowed, the entire GST structure would have been affected. I am optimistic that if the system is in place, taxes will be buoyant. Over time—a long period—consumers will benefit. As it is, small manufacturers have been adversely affected by GST. But the problem has been rectified to an extent.
Are all states on board over the tax slabs, particularly given the adverse impact on major sectors like small-scale units?
All states are cooperating in respect of taxes. But there have been criticisms. For instance, I wanted to have a 60:40 split in the rates because that was the ratio of the Centre and state taxes subsumed into GST. I also wanted a small range for SGST, because it wouldn’t affect anybody outside, to raise additional revenue for whatever reason. For instance, if I am following a path of development where we focus upon social sectors where revenues are low and expenditures are much higher, then I should be given the autonomy within a small range to tweak the rates. This would affect only consumers in Kerala and no one outside the state.
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Do you mean that cooperative federalism has been hit by GST?
That’s right. In fact, this was the principle on which the GST discussions began in the empowered committee during the UPA period under Asim Dasgupta (former West Bengal finance minister). It was among the cardinal principles but has been given short shrift, particularly after the UP assembly election last year. But despite the criticism, all states are cooperating. Political wrangling is absent in the GST council—it is very matter of fact. Arun Jaitley has played a very important role in the smooth running of the council. He has striven for a consensus decision.
Which are the areas that need more focus apart from the issues related to the IT backbone, which you mention has been found lacking?
IT infrastructure is number one. Number two is not to tamper with the existing structure through incentives like the sudden cess on GST on sugar. The e-way bill must be strictly implemented, for which there must be a national vehicle tracking system on the roads. And the most important task is to finalise the returns form, which is not ready yet. There is demand for simplification of forms, but there is a limit to the simplification you can have without damaging the quality of GST. There are ways of helping by having common service centres.
Do you think the criticism that the structure of the GST council is tilted in favour of the Centre unjustified?
I don’t think so. Without the Centre’s acceptance, you can’t make a change in the system even if all states join together. The Centre effectively has a veto. This is unfair, but with Jaitley we have not had cause to complain.
How long do you think it will take for GST to become fully operational and make a dent in the parallel economy?
I think it will, unfortunately, drag on till the Lok Sabha elections. I am anxious to have a more buoyant revenue. The timeframe for modifying the return forms is inordinately long. It will require tremendous determination to get it going. But the ruling party may not want to take any harsh decisions to speed up the process.