Debate over GST Bills

Debate over GST Bills


Sir, I thank you for giving me this opportunity to speak on these four GST Bills which will pave the way for rollout of GST throughout the country. We have reached to this stage after marathon discussions, deliberations, debates and finally reaching consensus on various aspects relating to GST. I congratulate the hon. FM for making GST dream a reality. He deserves congratulation and compliments on behalf of YSRCP since he has been able to go to a minute level, as reported, of exempting tax on animal shoe-nails, which no one can think of, to a macro level of imposing tax on luxury cars. So, hats off to him.

As the House is aware that the journey began in 2000 when Shri Vajpayee ji flagged off discussion on GST by setting up of a Committee headed by FM of West Bengal, Shri Asim Dasgupta. Now, we are on the last leg of this journey and a couple of months from now it become a reality.

We have had a comprehensive and exhaustive discussion on 101st Constitution (Amendment) Bill which gave a broad framework of GST and the Bills before us are in pursuance of that framework for consideration. I support these Bills.

 Impact of GST on key areas: Ø

  • The major and important area which GST touches is the travel time of goods. For example, an American truck driver carries goods and travel 700 kms a day and an Indian diver cover just 280 kms. This slow movement of trucks in India is due to huge toll taxes which they are supposed to pay as we have 650 different types of check-posts and there are 11 kinds of different road transport taxes. With GST, as per one study, we can boost travel of trucks by 20% and improves productivity by 12%. Sir, this is still much less than the world average of 400 kms. So, I think, in the days to come, further liberalization in taxation structure has to take place, at least, to reach world average.
  • As per economists, we are going to gain US $15 billion every year with GST and, in terms of GDP, it would be around 2%. This will lead to more exports, more employment opportunities, and the gap between manufacturing and services would be lessened to a greater extent and India would be recognized not just as ‘Office’ of the world, but very soon will become ‘factory’ of the world. With Make in India, Ease of Doing Business and other initiatives, this becomes reality very soon.
  • GST will reduce black money generation. After introduction of GST, traders will start buying on invoice, because advantages of tax evasion come down and it is economically beneficial to them if they pay taxes. Secondly, GST has a system whereby every sale transaction is tracked by Government through online portal, so it is next to impossible for people to either sell or transport goods without disclosing it to tax authorities.

Impact of GST on AP:

                FM of AP is on record saying that AP would be losing about Rs. 4,700 crores due to GST when he made presentation before the Empowered Committee. Clause 8 of the GST (Compensation to States) Bill says that Cess on goods and services as prescribed under Clause 9 of CGST Bill and Clause 5 of IGST will be levied and compensation to States will be paid for 5 years.

It further says: ‘or for such period as may be prescribed on the recommendations of the Council.’  

I need not apprise to the FM about the State of AP which is on the verge of declaring Financial Emergency in the State. Secondly and surprisingly, even though AP is a consuming State, it is losing Rs. 4,700 crores due to GST. There is no doubt that GOI will compensate that, but I only appeal – since Clause 8 gives an elbowroom to GST Council to extend the period – to extend this period to 10 years. It is only then there will be a level-playing field for AP to compete with other States.

The second point I wish to make is relating to the recommendations made by 13th and 14th Finance Commissions.

  • 13th FC recommended for keeping the rate below 20%.
  • Select Committee recommended to keeping the rate between 14% and 20%.
  • 13th FC recommended including petroleum products, alcohol and tobacco under GST.
  • 14th FC recommended universal application of GST.

By overriding recommendations of 13th and 14th FCs, you have decided to keep rate in 4 different slabs and an additional 15% Cess. You also exempted petroleum products, alcohol and tobacco. When YSRC is demanding for Special Category Status to AP, you are taking shelter under 14th FC by saying that it has recommended – even though there is no such recommendation – not to confer Special Category Status on any State and GOI has accepted this recommendation. There is no doubt that conferring Special Category Status is beyond the brief given to 14th FC. And, even if it recommends, you are free to override that the way you have negated recommendations of two Finance Commissions i.e., 13th and 14th . So, I am not keeping FM in katghari. All I want is to show the same kind of spirit the FM has shown to the recommendations of 13th and 14th FC on GST and confer Special Category Status on AP.

Sir, my next point is relating to Section 12 of the 101st Constitution Amendment Act, 2016, which amended Article 279 and inserted Article 279A(4)(g). Sub-Section (4)(g) permits GOI to make special provisions with respect to all 11 Special Category States.

It says and I quote:

“(4) The Goods and Services Tax Council shall make recommendations to the Union and the States on

                                (g) Special provision with respect to the States of Arunachal Pradesh, Assam, Jammu and Kashmir, Manipur, Meghalaya, Mizoram, Nagaland, Sikkim, Tripura, Himachal Pradesh and Uttarakhand”

Sir, if you look at Clause 11 of CGST, it has given authority to GST Council to exempt States from the purview of GST. It says:

               “Where the Government is satisfied…….it may….by notification, exempt generally, either absolutely or subject to such conditions as may be specified therein, goods or services or both of any specified description from the whole or any part of the tax leviable thereon with effect from such date as may be specified in such notification.”

This Clause flows from the above article and aims to exempt Special Category States. So, I request the FM to extend this facility to AP as it was also assured of giving Special Category Status by none other than the PM.

The next point is, if you look at Section 50 of AP Reorganisation Act, it says that that right to recover areas of taxes or duty on property is on the basis of geographical area. And, if you look at Section 51, it says that any sum recovered has to be distributed between AP and Telangana on the basis of population. Sir, both are contradicting with each other. And, there is no uniform yardstick. It has never been the case when UP, Bihar and MP were divided. By applying different yardsticks, AP is losing more than Rs. 3,800 crores due to apportionment of assets based on geographical area and liabilities on the basis of population. Since population of AP is higher than Telangana, it has to shoulder more liabilities. Now, GST has come in. So, I wanted to know from FM will he, at least, rectify this mistake now and do justice to AP.

Other areas need to address by GST:

 Need to exempt Affordable Housing from GST:

The goal of the Government is to have Housing for All by 2022. And, the Ministry of Housing and Urban Poverty Alleviation is really doing good work to fulfill this goal. But, there is an apprehension that if affordable housing is brought under the purview of GST, the objective will be defeated. For example, in this year’s Budget, affordable housing has been given ‘infrastructure’ status and is also exempted from Service Tax. These measures are aimed to boost housing and keep price at low level. But, if GST is imposed, the prices will become unaffordable and we cannot achieve the goal of Housing for All. Hence, I request FM to exempt affordable housing from GST purview. Here, I wish to submit that State Governments are collecting huge stamp duties even on affordable housing. So, I request FM and Housing Minister to persuade the States to exempt stamp duty on affordable housing.

Notification of CGST rate without Parliament approval:

Clause 9 of the CGST Bill is allowing GOI to notify CGST rates. Of course, subject to a cap of 20%. But, the point is, it can be done without the approval of Parliament! Does it not mean excess delegated legislation? Secondly, as per Article 265, no tax can be levied or collected except by authority of law and this authority has to be given by Parliament and it is exactly the reason why any change in taxes like income tax, service tax, etc., come to Parliament for its approval. You are, through CGST, doing away this mandatory process.

Bringing land and Real estate under GST:

Under Schedule III, Paragraph 5 of the Central GST Bill, sale of land and sale of building will be considered neither as supply of good nor as supply of service.

But Under Schedule II, Paragraph 5, construction of a building and renting of property are considered as supply of service.

This will create an arbitrary distinction between works contracts and readymade property.

The works contracts both for commercial and residential properties will be considered as service under GST. Thus, input tax credit will be available for taxes paid on inputs such as iron and steel, cement and other fittings that go into the construction of property.

In contrast, there is no tax on sale of buildings. Thus there will be no provision of input tax credits.

The Chief Economic Advisor had recommended that the artificial distinction between construction and readymade property should be removed and land and real estate should be brought under the ambit of GST. This will also help in tackling the problem of black money.

Another advantage of imposing a GST on the first sale of land is that it will deter hoarding and encourage land development because when the latter happens, the GST can be claimed as a credit.

There are several international precedents for taxing the sale of land under the GST, including in the VAT systems of Australia, Singapore, Malaysia, Indonesia and South Africa.

Anti-profiteering measures:

Under Clause 171 of CGST, you are proposing to set up Anti-profiteering authority to ensure if any reduction in tax rates after GST is passed on to the consumer by companies or not. The House is very well aware that price of goods and services depend on various factors such as:

Input costs;
Use of technology;
Tax rate;
Demand and supply;
Competition in the market of that product;
Distribution channels.

Since costs associated with these factors keep fluctuating, it is difficult to determine if a reduction in tax rates commensurately reflecting in price of goods and services. Sir, CCI is already there to deal any monopolistic attitude or rigging of prices. So, why should we have a duplicate authority to deal with the same thing? Secondly, Malaysia introduced this kind of authority, but failed in its implementation as it is administratively difficult to implement. And, this will be seen as entry of Inspector Raj through backdoor. So, I request the FM to look into this very seriously.

Taxation of Free Supplies between Related Parties:

GST proposes taxing any free supplies between two related parties. The problem arises especially in case of related parties located in different States. Such transactions between related parties in different States mean each party would have to generate invoice, maintain documents, etc. There is no centralized registration under GST and, therefore, this would create compliance issue for companies.

The bigger issue in this is valuation. If stage one of a good is manufactured in Delhi, stage two in Noida and stage three in Faridabad, how would a company value the goods at different stages. The GST law does not give a formula for valuation and this could create dispute between manufacturer of goods and services and the tax department. So, I request the hon. FM to look into this aspect.

Controls over Tax Assesses:

To avoid dual control, the GST council has reached a compromised formula – 90% of tax assessees with an annual turnover of Rs 1.5 crore or less, will be assessed by states and the rest by the Centre. For those with turnover of over Rs 1.5 crore, the states and the Centre will share it equally. However, this ‘solution’ has its own set of issues. Let me give an example, if an entity with a turnover of less than Rs 1.5 crore in one year, posts turnover of Rs 1.5 crore in the following financial year, who would be the new authority to take over the assessment? And, how will the existing investigations, if any, against the entity be addressed, and by whom? So, I feel, there are a lot of procedural issues, and if these issues are not addressed properly, they would lead to litigations. So, there is a need to give a serious thought to this issue.

Tax on tobacco:

Empowered Committee in 2009 had recommended for levying tax on tobacco in addition to GST. The Constitution 115th Amendment Bill introduced in 2011 contains a provision in this regard. It is a good move. But, now, the GOI wants to remove this which will be a retrograde step. Because, I feel, if you levy additional tax, the same can be used for the benefit of tobacco growing farmers. The same can be used to help them for alternative crop. Tobacco farmers wanted to come out of tobacco production, but cannot come out because they have invested lakhs of rupees by getting loans. Now, they are willing to come out of tobacco production. But, they cannot due to huge loans. So, the additional tax can be used for tobacco farmers for taking up alternative crop. But, this recommendation has not been accepted by the Government. So, I would like to know the reasons behind this.

So, Sir, these are some of the observations which I thought that I should share with the hon. FM and the House and request the FM to seriously ponder over these and take appropriate steps to make GST more effective and implementable.

Thank you.