Shaktikanta Das, Former Revenue and Economic Affairs Secretary, was one of the 11 persons who were instrumental in giving GST its present shape soon after the Modi government took charge. As revenue secretary, he worked closely with all the others including Arun Jaitley and the empowered committee of state finance ministers to come up with the draft legislation. He retired as Corporate Affairs Secretary of Government of India after 37 years in service. In an exclusive interview with OTV, Das explains the Goods and Services Tax (GST).
Q: What is GST and how is it going to affect the States and small businessmen and big corporate?
A: GST is very different from the existing tax structure. Before GST, the 70 year old taxation system as prescribed by the Constitution included the State list and the Central list. Under State list all commodities and services had a sales tax implemented by State government or VAT. There were also 10 to 12 other types of taxes levied by the State like entertainment tax, luxury tax, entry tax for import of goods from other states, Central sales tax and so on. Under Central list, there was Central excise, service tax and many more, levied by the Central government.
This made each State function like individual islands. For example, if a motorcycle was manufactured in Odisha got raw materials from Andhra Pradesh, taxes were paid to Andhra Pradesh. When sold it to a wholesaler in Odisha, one had to pay tax at this junction. Then again, while selling it in a third state, say West Bengal, again tax was levied there. So the manufacturer paid multiple taxes and the product price used to be high which decreased the competitiveness of our businesses and industry.
Q: Will products now become cheaper after implementing GST?
A: With introduction of GST, a single tax replaced the multiple taxes levied upon each commodity and service. But in social media, a question is making rounds that while GST is being claimed as a single tax, the bill receipt shows a SGST and a CGST. I wish to explain that there is only one tax but with two components which include a State share and a Central share. Now India became one market. If tax is paid once for a product during manufacturing, in the second stage while going from wholesaler to retailer the tax will be subtracted. So the price will become competitive.
Most products have reduced tax rate under GST while it has been raised for many services. Though it is believed this will increase its price, since the multiple taxes are not levied, the price will not increase drastically. It could be slightly high in some cases. If service tax has been increased from previous 15% to 18% under GST, that doesn’t mean the price will increase straight by 3 per cent because other taxes levied on the service will no more be included.
In fact, majority items in GST baskets have been decreased and only some have increased. It will be clear in two to three months if GST will overall increase the prices or not. But as much as I understand with the experience I have, there is no chance of increase in price to a great extent.
Q: How will GST help various States including Odisha? Will it benefit States with mining resources more?
A: States with mining resources could not witness industrial development compared to Maharshtra, Gujarat, Tamil Nadu. States in eastern belt like Bihar, West Bengal, Odisha have lagged behind in industrial development. Odisha, Madhya Pradesh, Chhattisgarh, Jharkhand have rich mines but could not see great industrial development. Since GST is a destination and consumption-based tax, States where goods and services are finally consumed will get more revenue. Earlier service tax was levied and collected only by the central government. However, in GST the service tax component will be shared equally between the centre and the State. Under the GST, for the first time the States have been given the right under the constitution to collect and keep the revenue generated from service tax.
Q. As being pointed out by political parties, has the implementation of GST been done in a hurry?
It is not at all a step taken in a hurry. There is no perfect moment for implementation and had GST been implemented after six months some problems might have surfaced. Over the past 7-8 months, both the Centre, State governments, officials and traders associations were clearly informed and made aware of the GST implementation from July 1. Ample preparations have been made for its implementation. As far as my understanding goes, adequate preparations have been made at the State and the Central level. Cases where adequate preparations have not been put in place, the government has given 2 months’ exemption from filing of tax returns. This is a very big change and whenever a new system is put in place some glitches will surface at the beginning but within 2-3 months everything will be sorted out.
Q. What’s your opinion on experts who feel that the tax slabs under GST are higher as compared to other countries?
If one follows the textbook GST implementation, there should have been only a single rate. However, India has been operating under an existing tax system for the past 70 years. There are many items wherein the poor and the common man pay a tax of 5-6-7 %. Tax rate on maximum food items have been kept very low under the new regime. If one goes for a common rate, then items used by the poor and the common man will be taxed higher and luxury goods will attract a lower tax, which is not at all feasible from a socio-economic equity point of view. So keeping in mind the tax legacy of our country, we have created 4-5 slabs. This is a new beginning and as far as my expectations go, in the next 3-4 years the tax slabs are likely to reduce. The Union Finance minister has already indicated that in the next 3-4 years, the 12% and the 18% slab will be combined together to create one slab.
Q. Important sectors like petroleum, power and real estate have not been included in GST. Is there any scope to include these in future?
In 2009, the empowered committee of State Finance ministers came out with a discussion paper in which electricity and real estate were not included. Now discussions are on at the GST Council for implementation of GST in real estate sector. We hope that GST will come into force in real estate within next couple of years. Electricity was not there in the first recommendation and it may get included in future. The states did not want Petroleum products to be included in GST as it is a major revenue source for the states. However, at the centre we wanted to include it. Hence, it was agreed that as per constitution of the regime petroleum and petroleum products are a part of the GST. At a future date the GST Council chaired by the Union Finance minister will decide the date from which petroleum and petroleum products will be taxed.