Sunday Interview: After GST, states must have the right to charge surcharge or cess'

Sitaram Yechury, general secretary, Communist Party of India (Marxist), says that the GST Amendment Bill is only the first step in the implementation of GST. In an interview with Pawan Bali, he also argues as to why introducing it as a money bill contradicts the federal nature of this tax.

After the GST Constitutional Amendment Bill the focus has now shifted to what should be the standard GST rate. What type of GST rate would you like to see?

In the GST Constitutional Amendment, we have been very clear that there are going to be three GST bills — Central GST, integrated GST and state GST. We strongly object to the erosion of federal content of our Constitution. The initial idea was that there will only be a Central GST. But one Central GST would have deprived states of any right to raise resources and that, according to us, would have gone against the federal structure of our Constitution. So, finally an agreement was made to ensure that there will be three GSTs.

After the Constitutional Amendment come the real issues. One, of course, is a standard rate. Now in terms of economic theory, GST is an indirect tax and increase in indirect taxes means increasing the burden on the people. In India, two-third of our Central revenues come from indirect taxes and only one-third from direct taxes. Our proportion of direct tax collection to total tax collection is one of the lowest in the world. Indonesia has 20 per cent more than we have in terms of direct tax component. Already, the people are burdened so that should be kept in mind when the GST rate is decided. States have their own concern for revenues, so it is going to be a contentious issue.

The Congress wants to cap standard GST at 18 per cent…

Right now the government has worked it out at 27 per cent (Central excise duty plus state VAT). Reduction from that will mean loss of how much to whom. This issue has to be worked out. But in-principle, it should not be very high.

On Thursday chief economic adviser Arvind Subramanian said that standard GST rate up to 20 per cent will be bearable but anything beyond will stoke inflation and may raise compliance issues…

Yes, and I think the RBI governor will also step in because monetary policy will be effected. I think the RBI’s opinion should also be taken.

Do you agree that 27 per cent GST rate will be high?

Yes. I have said in Parliament that 27 per cent will be very, very high.

Another issue is whether the subsequent GST legislation will be brought as a money or finance bill.

This money bill business is a dangerous recourse which the government is taking to avoid the Rajya Sabha. They have declared Aadhaar Bill as money bill. It is now before the Supreme Court. They have declared a private member’s bill on Andhra Special package as money bill and they forced the Rajya Sabha chairman to refer the matter to the Lok Sabha Speaker. So what they are doing is actually subterfuge. They are trying to avoid their minority status in the Rajya Sabha by taking recourse to money bill. We completely oppose this.

Should the GST be declared as a money bill or financial bill?
We think the GST is a major legislation and both the Houses must have equal rights in passing it. It should not be declared a money bill. It should be brought as a finance bill. I completely disagree with the government on their interpretation of the Indian Constitution. Clause 110 (1) defines what is a money bill. It gives you all the categories. Clause 110 (2) says what is not a money bill. Then clause 110 (3) says in case of a dispute the Lok Sabha Speaker’s decision is final.

So Clause 110 (3) comes into operation only when one and two are exhausted and there is some item which is not covered in one or two so if there’s a dispute on that item then the Speaker will adjudicate. How can you ask the Speaker to adjudicate on matters already listed in Clauses 110 (1) and 110 (2)?

What options does the Opposition have if the government brings GST as a money bill?

The matter is in the court, so let’s see. We hope the Supreme Court gives some opinion before these things come up.

Do you think states should still have some right to tax after the GST?

I think states should have the right to charge surcharge or cess. For instance, if there is a natural disaster, to provide relief to the people the state government may decide to impose a surcharge on some items for that period. This right should remain with state governments.

For instance, the Kerala government has imposed a health tax or fat tax, which is internationally being hailed as a very radical proposal. If you remove that right they will not have such options. The West Bengal government has put a very heavy surcharge on cigarettes to give compensation to victims of the Saradha scam.

Under GST high consumption sates will get GST revenue but manufacturing states will not get any benefit after five years (Centre will compensate states for the loss of revenue for five years). Do you think in the long run GST will have a bad impact on manufacturing?

This is a very serious problem. That is why the compensation clause for five years was brought in the Constitutional Amendment. But you are right. Five years down the line there will be a serious problem. It should be solved with proper discussion, we should try to evolve a consensus and this is what the government has not been doing.

Till date there has not been a single all-party meeting on GST. The government should now discuss the GST rate in Parliament and build a consensus. When you call an all-party meeting, all parties come with their considered opinions, many parties come with written arguments. On that basis, the government should build a consensus. The government is treating it as a Congress-BJP issue, which will not work. Most of the state governments are from regional parties and the Centre has to take them on board.

The Centre argues that the issue is being discussed in state finance ministers’ council where all political parties get represented.

But you have both the processes — you have state finance ministers and political parties. You have done that before and it has been very useful.

Many stock analysts are bullish that mid-cap companies will benefit because their competitors in the unorganised sector will come under GST.

That is not a settled issue. It is still not clear whether companies in the unorganised sector will come under the GST. Most probably, they will come under state GST. In that case, the situation may not be very different from what
it is now.