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January 28, 2020

Session with all state FMs needed for overhaul of GST framework: Dr Amit Mitra

Session with all state FMs needed for overhaul of GST framework: Dr Amit Mitra

Bangla Finance Minister Dr Amit Mitra has called for a three-day session of all finance ministers to overhaul the framework of the Goods & Services Tax (GST), the design of which is faulty and is one of the reasons for the economic slowdown in the country today.

In an interview, Dr Mitra, who is also chairman of the committee of empowered finance ministers, said there were four points behind why the GST had failed since the three years that it has been implemented. One, the entire design was faulty: there were no pilots done, no data tests, no trials. And this when, for the first time in the history of the world, the largest tax reforms were taking place.

The laws and rules were faulty; there were frequent change in rules, and everybody lost, both the business and IT sectors. The second point is the complete inability to cope with what was happening. Number three point is there were frequent changes in the rate structure per item. The IT people were at a loss, as they too have to make frequent computer adjustments. And fourth is that the Centre-State coordination was completely lacking.   

To substantiate why GST has been a massive failure, it is interesting to note that in 2018-19, approximately Rs 30,000 crores were to be collected from GST, both States and Centre together. But what was collected? Rs 24,000 crores. This shortfall of Rs 6,000 crores – a huge 20 per cent because the whole system is faulty.

The key point for a solution is, we need to restructure the entire GST mechanism, which is not happening. The response is knee-jerk. At the GST council meetings, everybody fights over what rates to reduce, what rates to increase because their states are involved. And the last Govt of India meeting of the GST council ended up by saying at the end of February 2020, they will not have enough money to pay compensation to the states! 

The states had given up everything – value added tax, amusement tax, luxury tax, central sales tax. So states have surrendered 70 per cent of their revenue to bring about the GST. When the VAT regime was there, there was no need of compensation in the first two years. But here you have a system which is inter-state, going all over. Therefore, there has to be a complete overhaul.

In August 2019, a letter was written to FM Nirmala Sitaraman about the increasing number of fraudulent transactions in GST. So the time has come to overhaul, in collaboration with each of the state finance ministers in a federalist polity, where we put our heads together to restructure the GST policy for the sake of the small and medium enterprises and the businesses of the country. The Govt of India for a long time was not accepting there was an economic slowdown. Now they are admitting. Similarly, let them own up and say that the GST has failed to achieve the goals that were wanted. Only 7 per cent growth has taken place in tax collection. It should have been 14 per cent. They are unable to pay compensation to us. Once you own up, go into a huddle with all the finance ministers for three days. And the only topic would be how to overhaul the GST system for the sake of the nation’s people in a federalist polity, trusting each other.