UPA Model of GST was flawed – Ex Finance Minister Arun Jaitely

UPA Model of GST was flawed – Ex Finance Minister Arun Jaitely

On the occasion of GST Day (1st July) the Ex Finance Minister Arun Jaitely has tried to convince people that UPA Model of GST was flawed. No wonder, Shri Jaitely must be very conscious that GST was infact a proposition of Congress led UPA Government and then it was BJP that had stalled the GST implementation.

The relevant text of the Press Release titled as “THE GST EXPERIENCE – Arun Jaitley” issued by the Finance Ministry  is as under:

The Flawed UPA Model of GST

My friends in the UPA and the Congress Party occasionally raise questions as to why some Chief Ministers were not comfortable with the idea of GST during the UPA period. The fact is that almost everyone wanted the GST but not a single State was comfortable with the UPA’s model of GST. There were two prime reasons for this.

Firstly, the UPA Government lost the confidence of the States, including the Congress ruled States. In a move towards the single tax system, the UPA asked the States to abolish the CST. It promised the States that it would give them a compensation in lieu of the CST for a certain number of years. The States acted accordingly, abolished the CST and the Central Government owed the States several thousand crores as CST compensation. When the States demanded CST compensation, the Centre would look the other way. When I took over as the Finance Minister in May 2014, all the States, including the BJP ruled States, told me that they don’t trust the Central Government because of what the UPA Government had done. They will discuss GST only if past CST compensation is paid. I conceded that the UPA let down of the States was unacceptable and in order to bridge the trust, despite pressures on the Central revenue, I will clear the arrears of the Central CST. I, accordingly, did that. The CST compensation was paid. The States were then willing to come to the table and move further on the GST.

The second reason why the UPA failed in its effort to bring the GST was that every State was apprehensive that during the transition period there would be a loss of revenue to the States. How would the States be compensated for the loss of revenue? Their demand seemed logical but UPA chose not to address it. The Constitution amendment proposed by the UPA had no provision for compensating the loosing State. Manufacturing States like Tamil Nadu, Gujarat, Maharashtra and Karnataka were particularly apprehensive. They had raised a flag “No Compensation No GST”. Having brought them to the negotiating table on the strength of the CST payment I agreed to pay to the States, after discussing in the GST Council, a 14% increase of revenue for the first five years for any loss of revenue. The States jumped for this proposal and we succeeded in winning trust of the States back for the GST enactment. Our positive commitment to the federal principles was unambiguously established.

The Petroleum Products Issue

Both Rahul Gandhi and P. Chidambaram have repeatedly demanded that petroleum products be forthwith brought within the GST. When I speak to the Congress Finance Ministers’ in the States, they don’t seem to be ready for it. But what was the UPA’s own track record on petroleum products in the GST? The Constitution amendment proposed by the UPA permanently kept all petroleum products outside the GST. Thus till such time that the Constitution was ever amended again (it is normally difficult to amend the Constitution), petroleum products would never be in the GST as per UPA. Having won over the trust of the States, I used the inclusion of petroleum products as a bargaining issue with the States while conceding the CST and compensation payment to the States. I worked out a formulae that petroleum products would be included in the Constitution amendment providing for the GST but the council can decide the date from which to bring them into GST. The States agreed. The UPA kept petroleum products permanently outside GST. On the contrary, we brought them back into the Constitution as levyable to GST and can gradually impose the GST when the GST Council so decides. For this I would continue to make my earnest efforts and hopefully when the States are more comfortable with the revenue position, it would be an ideal time to strike for a consensus between them.

A Single Slab

Rahul Gandhi has been advocating a single slab GST for India. It is a flawed idea. A single slab GST can function only in those countries where the entire population has a similar and a higher level of paying capacity. Being fascinated by the Singapore model is understandable but the population profile of a state like Singapore and India is very different. Singapore can charge 7% GST on food and 7% on luxury goods. Will that model work for India? Since GST is a regressive tax, the poor have to be given a substantial relief. Thus most food items – agricultural products and the AamAadmi used products have to be tax exempt. Some others have to be taxed at a nominal rate. The others could be taxed higher. Eventually, as the collections improve, many more items from the 28% category can possibly come down. Only sin products and luxury goods can remain there. There would also be a scope again, depending on the collection going up, to merge some of the mid category slabs but for that we have to see the progress of the new tax regime and the possible upward movement in the collections.

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