The biggest tax reform in decades – the national Goods and Services Tax or GST – has been thoroughly jeopardized by the centre’s abrupt demonetization drive, said Amit Mitra today. As the Finance Minister of West Bengal, Mr Mitra is on the GST Council, which is drafting the rate and scope of the tax. He told NDTV that the April rollout of the tax seems unfeasible now and he will talk to other Finance Ministers about revisiting support for a reform seen as crucial for economic growth.
“After demonetization, GST has become a double whammy for states,” said Mr Mitra to NDTV. The GST replaces a patchwork of central and state tariffs, creating a single market across the country. States are to be compensated for the next five years by the centre for the money they will lose from their taxes being removed.
However, Mr Mitra said, the abrupt banning on November 8 of 500 and 1,000-rupee notes has already created an economic slowdown, so states are losing more money and sooner than planned.
The government needs to redo its arithmetic,” he said, suggesting that the government’s April deadline for introducing GST now seems doubtful. He said the centre “should do GST at a time when it’s feasible,” adding, “I don’t see that at this time, as a student of economics.”
Mr Mitra’s party boss, Mamata Banerjee, has demanded the rollback of the notes ban, which the government has flatly ruled out. Mr Mitra served earlier as the head of a special committee that fleshed out the contours of the GST. Now, the details of the tax are being worked out by the GST Council which brings together Finance Minister Arun Jaitley with his counterparts from states. It has resolved some key issues on how the sales tax would work and has approved draft rules for its collection.
Economists including former Prime Minister Manmohan Singh have said that economic growth is likely to shrink by at least 2 per cent on account of the notes ban.
Trashing the notes ban as a “tectonic” hit, Mr Mitra said, “I’m deeply concerned about timing of the GST. People are talking about a recession. A 2 per cent fall in GDP is serious, (so) can GST happen?” He said he will reach out to Finance Ministers of other states to collate concerns about how their revenue is being affected.
The GST would do away with levies charged when goods cross state lines, a boon for manufacturers and transporters. The Finance Ministry has proposed four tax slabs, with the highest at 28 per cent for about 20-25 per cent of taxable items. Other slabs included 12 per cent for food and fast-moving consumer goods (FMCG), and 6 per cent for precious metals like gold and for essential items.
To meet its April deadline, the government has been keen on parliament clearing key GST laws in this session which would formalize the tax rate and divide tax assessment powers between the centre and states.