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June 27, 2018

Trinamool’s Amit Mitra speaks on one year of GST

Trinamool’s Amit Mitra speaks on one year of GST

Minister of Finance, Industries and Commerce, Dr Amit Mitra speaks to CNBC-TV18 on the first year of GST. Here is a transcript of his interview.

Question: You were in a sense the pivot around the GST negotiations as the Chairman of the empowered panel and then of course as the member of the GST Council you have pretty much seen the rollout of the GST and the many tweaks and revisions that have happened over the last 27 meetings of the GST Council. Politics aside, If I would ask you, what the GST set out to achieve and what it has been able to deliver at the end of the last 12 months, how much do you believe is the gap today?

Amit Mitra: I think first of all let me submit to you that the States in the Empowered Committee were very reluctant for many, many years in wanting to agree to GST. In fact, it is interesting that my then-colleague from Madhya Pradesh who happened to belong to BJP, then also the Gujarat finance Minister, who happened to be from BJP, had a great resistance to GST.

Why? People must understand that the reason is that the States through the VAT mechanism had tremendous powers of being able to collect revenue and run their resources in their budgets. Now GST would mean giving up their entire power. Now what that meant is in the Kolkata meeting of the Empowered Committee of all Finance Ministers which I happened to Chair at that time, we came to a consensus that we would agree to this, provided five years of compensation of revenue lost is accepted by the Central Government.

So, the Union Finance Minister who was upstairs in the hotel, came down after we arrived at a consensus, giving up the powers of the States and handing it over o the sake of reform of ‘One Tax’ across the country, single country movement etc.

Now unfortunately, as we stand today at the end of one year, I am constrained to say that we are in a horrible mess. What we had envisioned in terms of design of the programme, right from the beginning which I will point out to you as we move along in the interview, very little of the design, in fact the original design, was given up! And a new design was introduced which was only a stop-gap.

Now we hear that very soon a new design is going to be introduced in terms of the architecture of the GST and all this has meant huge problems for the small and medium enterprises, as you know for mid-size companies which I’ll come to when you ask me. Why is that case? Also it has even, believe it or not, because of the current system of the failure of the system, hawala is going up. I am told by my officers. So, the entire architecture, which would have been clean, neat, has not happened.

Question: You said that things have turned into a horrible mess. Why would you say that, Sir, because largely when we speak with industry – and yes, there have been pain that small and medium enterprises and exporters have felt – but largely corporate India has made the transition to the GST.

When you talk about collections clocking over 90,000 crores month on month, some degree of stabilisation has been achieved as far as revenue is concerned. When you talk about compensation, states have been compensated till about March 2018 to the tune of about 47, 844 crores, so what is this horrible mess that you speak of?

Amit Mitra: The horrible mess I speak of is that, as far as corporate India is concerned, you must understand that, there is a fear in the country. Who is ready to speak their mind? You talk to them privately, I know and I know what they tell you privately and what they are telling you publicly. Let me be specific. The design was that you first fill up a GSTR 1 form, which gets uplinked, those are sales invoices. Then you come to GSTR 2 which has a purchase invoice and then you come to GSTR 3 which matches the two.
All this was to be done electronically.

Why I am calling it a mess? GST R 1 is there where the invoice is there, GSTR 2 does not exist and therefore matching does not happen. Now you are introducing a short form called GSTR-3B which is not backed by invoices. Do you know what’s happening today? Every State officers have to go manually over the output, not only exports but also day to day process because GSTR-2 has failed. GSTR-3 which was supposed to match the two and then the settlement happened has failed. Now you have an interim settlement just to see that some taxes flow to the States. Are you aware in the case of IGST (Integrated Goods and Services Tax)

Question: There was a Group of Ministers set up to bring in the change in the form and we are given to understand by September or October we will see a simplified form rolled out for filling returns. On the issue of invoice matching, the industry’s feedback has been that the compliance burden is substantial especially when it comes to small and medium enterprises. So, when we talk about return simplification are we not moving in the right direction?

Amit Mitra: We are moving in the right direction is a very ephemeral statement. It’s been one year but still the original architecture is absent and the new architecture does not exist because you are doing a temporary form called GSTR-3B and the magnum architecture is being said that it will come out in September/ October.

I had already said it in the GST Council meeting that we must first do a pilot which is always done internationally. See if we are managing it well then produce a white paper then bring it to the GST Council so that all of us feel comfortable that the system and the architecture is working well. But neither of that happened. Are you aware that Rs 300 crore worth of invoices are to be processed by the GSTN?

What I have described to you shows even GSTR-2 which is for matching invoices has failed. The dangerous thing in all of this is while filling a GSTR-3, which is a short form, as a substitute you can say, you do not file invoices with it. This is where hawala comes in. My officers and other State officers have said to me just because you can fill in anything you want, you do not have invoices backing them, there is no matching and checking electronically, you don’t have an auto-population as it is technically called.

Therefore, today hawala is growing because the whole system that we had expected one year ago will come in six months time… three months time… four months time… and now you are telling me the new system will come in September or October! Are you sure that’s going to come?

Question: I want to ask you about the way forward, Sir. Do you believe that there are key legislative amendments that are required? If yes, what would those be? The second crucial issue is, as far as current rate rationalisation is concerned, specifically in the 28% bracket, do you believe that is something that should be attempted now or should there be further stability in the revenues before there is any move towards any rate rationalisation?

Amit Mitra : The first point I would like to make is that do you or your viewers know that Rs 2 lakh crore is lying with the Union Government as IGST deposited there. Are you also aware that this was shown in the Budget, which in effect reduced the budget deficit? I want to know what a responsible Government is supposed to be doing when you have Rs 2 lakh crore lying in your IGST account. So, when we are moving forward, which is what you are asking for, first we have to fix the architecture so that what we has expected one year ago will happen.

Let me also talk about export refund you mentioned in your question. Are you aware the first step of export, you first uplink RFD01 form, which can be uplinked online. After that you have to bring thousands of pieces of paper manually, to the offices of both Centre and State, and my officers are going over thousands of pieces of paper because there is no auto population – that system of GST never happened.

So, now what is happening is that exporters are not getting refund, the minute they don’t get their refund their whole structure then goes back to the job workers because you don’t have existing capital utilisation on day to day basis, job workers lose their jobs and exports suffer. West Bengal, for example, has 9.5 billion dollars of export. When you don’t get refund you’re going to cut back on your moving/rolling capital, and then you cut back on the smaller guys first. So, my question to you is why is Rs 2 lakh crore of IGST stuck in the system?

Question: Let’s address the IGST issue Sir, because this is the issue that the Deputy CM of Delhi has also raised and he said that it is Rs 1.8 lakh crore that is held up in the escrow account, it is of no use to the Centre or the State, it is lying idle. Now is this matter going to be taken up? Are you and other Finance Ministers going to raise the issue of the IGST because as Delhi Deputy CM is pointing out and you did it yourself, you know this money is lying ideal in an escrow account?

Amit Mitra: Let me correct this a bit. Mr Sisodia is a very good friend and we all work together in the GST Council across political parties. Key point here is this – Rs 2 lakh crore was shown in the Budget. It is not just an escrow account you will find it in the Budget, therefore the basic revenue deficit you’re looking at is, in fact, not correct because this Rs 2 lakh crore is hiding in there. Of course we will raise it.

What happens to IGST , inter-State trade, India is full of inter-State trades, there are consuming States, there are producing States, there are semi consuming and semi producing States. Now all of them are doing inter-State trading or integrated GST.

We wanted One Tax which will move forward and we gave up VAT, we gave up entry tax, now we end up with IGST not available to our businesses. Can you imagine going backwards towards thousands of pages of documents being brought manually. This is why I am calling it a mess. Let the Government of India give an answer. You can’t get away just by saying this collection (pause). You tell me which collection has reached the level that you wanted.

Question: Sure. But on the issue Sir, whether we can expect State Governments to play ball with the Centre? The Centre says look we want States to agree to the idea of bringing petroleum under the ambit of the GST. We are given to understand that this might be taken up at the level of the GST Council in the next meeting. Is it realistic to expect that things like petroleum, real estate whatever is outside of the ambit of the GST or perhaps if not fuel altogether but things like ATF could, in fact, be brought under the ambit of the GST. Is this a realistic expectation?

Amit Mitra: I don’t think so. You see, what I have described to you factually of the corrections required. Let me give you an example. The appeal module. Suppose you say this is my refund and the State disputes it. Do you know the appeal module is not itself online, which was supposed to be, and it has become manual? It means you will have rent-seeking, you will have inspector raj, because once you will appeal manually, which is not visible transparently, there will be a problem. So my humble submission is, look, no State has reached the 14% rate of growth as per the base given. West Bengal, in the month of March last year, reached that 14%. It was 3% higher, then it fell back again. So no State is reaching your target. Now in the middle of this instability you want to introduce some more things that are contentious? How does that work? Fix this first.

Let us all feel comfortable that what we had thought of when we had given up all our powers as States, let’s come to some balance. I had repeatedly said, don’t launch it on the 1st of July. Ok, you went ahead and launched it. Now we are on the 1st of July one year later. My question is, till there is stability – the States are making the kind of revenue we all expected we will – how are you going to introduce more things?

You asked about the 28%. I had made a proposal that other than sin goods, which is like tobacco, etc. or extreme luxuries, the rest should be brought down to 18%. What happened? Cherry-picking happened. Now, in a boardroom environment, with so many ministers, naturally everyone will have their own demands, which we put on the table. Now all of a sudden we were told, no no, we will put another cess in the system called cess on sugar. My god! You are already on an unstable system, now you want to put another cess. Then you say, no no, we will also put a special dispensation for using digital products. It’s like an incentive. Now rule is no longer there. Now the Central Government itself is giving money on sugar issues in UP.

Question: On providing incentives for digital transactions as well as the sugar cess, it looks like both those issues have been pushed to the back burner for now, or so it seems. The more I hear from you, I get the idea that States are unlikely to support the demands for including real estate, petroleum, etc. into the ambit of the GST just yet. But would you agree to perhaps pruning the 28% bracket? You were not in favour of 28% outside the sin goods bracket to start with. Or do you that let revenues stabilise further before any more tweaking is done with rates.

Amit Mitra: I think the one thing you must understand is that once you tweak some rates, the GSTN – GST Network – has to go through many gyrations – massive IT system of 300,000 of invoices’ uplinking per month. So I would say we would now have to be very cautious, bring the system back so that we all as States start getting the revenue that we expected to get and the Centre gets the revenue that it expects to get, let the system stabilise of the world’s largest fiscal reform which we in the Empowered Group of Finance Ministers, in which the Government of India was not present, came to a conclusion to give up our rights.

We have the right now to see s stable system that allows stability, revenues to reach normal buoyancy for both Centre and the States, single-entry process – we have given up the entry tax, as you know, it is basically e-way bill-based – so all these put together. Having failed three times miserable with three different architectures, is it time to bring in some more things? It is typically jugaad mentality, that you can see what you are doing in front of your face, but they said, so no, we will go ahead. This is like demonetisation- we will go ahead. I am sure the finance ministers of India – of the States- are all together on this.

You quoted Deputy CM of Delhi. If you privately ask the finance ministers of different States, they will tell you the pain, the manual process their officers are having to go through, they will tell you the original architecture has failed – this they’ll tell you and they’ll tell you, I’m most afraid of the fact that my revenue has not come to normal, so I am dependent on the Centre by constitutional amendment to give us compensation. We do not want compensation if we can do our own revenue. Why should we be dependent on the Centre? But, we have to and that is the guarantee the Constitution has given us. You think the state Finance Ministers are not pained by this failure of the system? You privately ask them and they will tell you.

Question: You are pretty much publicly stating the pain. So, I do not need to publicly ask. You have made it amply clear here on live television, Let me ask you Dr Mitra, in terms of the priorities and the road ahead now, in the second year, what will you put down as priorities that ought to be addressed?

Amit Mitra: I think first and foremost step is that the system has to become GST-based auto-populated, auto-system, which is what we had craved for. That is the first thing that we will have to do. You will then see immediate stability. You will then see revenues going up, because it is all online. You will also see no hawala, which has increased a lot in the last twelve months, I am told by my officers. It will itself go down because you are online, you are transparent.
So, the first step in the next three months should be to fix the system once and for all, as we had expected many many months ago. We get stability of revenue collection, we get stability of business. MSMEs are crying out loud today. They may not tell you publicly, but they are in terrible shape because there is no matching of systems of GSTN 1 & GSTN 2 which results in GSTN 3. They do not know what will happen to them. They are just putting in GSTN 3B, what they think is right, and now go on appeal. Even that is not online.

So, I want you to understand, that the first step is making the systems right and then go to the next step on how you are going to deepen work towards other kinds of reforms in the system of GST to tell the world that this is the world’s largest fiscal reform.
So far it is a complete mess and I am hoping that in the next three-four months or five months, having failed in the first one year, we come back to an automated system, which was our objective, with no rent seeking, with no manual process by and large, and refund to the exporters and the MSMEs feel comfortable in being in the GST system.

Revenue buoyancy must happen for states. Who wants to be dependent on the Centre? We love to be dependent on ourselves which we had during VAT. So, we have to go back to that point and I am honestly hoping against hope with national elections coming around very soon.

Who is going to take this call? Our Hon’ble Union FM, I empathise with him, he is not well. We have a new Finance Minister. Everybody is saying they do not know who is the FM – PMO website says something, Finance Ministry says something else. So, we ought to get hold of these and together work collectively shoulder to shoulder. Take care of the MSME. Take care of the exporters. And therefore only then move forward and propose new new things which you have raised today.