GST Council’s consensus track record under cloud

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Simmering political differences spilling over into public view has triggered fears that the consensus that defined decision making on the goods and services tax (GST) could be under threat.

For one, a panel discussion hosted by lobby group Federation of Indian Chambers of Commerce and Industry (Ficci) saw divisions along political lines between Amit Mitra, the West Bengal finance minister belonging to the Trinamool Congress, and Sushil Modi, deputy chief minister and finance minister of Bihar. Modi belongs to the Bharatiya Janata Party.

Second, the erstwhile empowered committee of state finance ministers has emerged as a bone of contention among the state finance ministers (FMs). Technically, the formation of the GST Council has made the committee redundant. However, Mitra, who was the chairman of the committee, made a move to revive it and convened a meeting on Thursday in New Delhi. With BJP FMs and some other state FMs skipping the meet, the committee gathering was a virtual non-starter.

The agenda for the meeting on Thursday included discussions on state revenue resources outside GST, the 15th Finance Commission constituted recently under the chairmanship of N.K. Singh and the scope of taxation powers of states in the Constitution.

In a 7 December letter, Modi had questioned the mandate of the empowered committee to discuss revenue and taxation powers of states after the constitution of the GST Council.

Earlier in the day, Mitra and Modi, who did not attend the committee meeting, sparred at the Ficci deliberations. Mitra claimed that states such as Madhya Pradesh and Gujarat, which now support the new tax system, had earlier opposed GST, a claim that Modi contested. Mitra, who had earlier proposed deferring the GST rollout from 1 July on the ground of lack of preparedness, said the world’s largest fiscal reform needed better implementation.

“The fundamental issue that needs to be addressed is the incapacity to implement the reform,” said Mitra. The minister pointed out that the feedback he received from small scale industrial units in places such as Tirupur and Moradabad was that output has fallen by 40%, which needs to be resolved.

Modi, who was present on the occasion and was the chairman of the empowered committee between 2005 and 2013, responded that Gujarat and Madhya Pradesh had not objected to GST per se but had only raised concerns over issues such as taxation of inter-state commerce.

If the differences indeed remain unresolved, the fear is that it could threaten the consensus in decision-making in 23 meetings of the GST Council—which has been dubbed by Haseeb Drabu, the FM of Jammu and Kashmir, as India’s first federal institution.