"There is nothing great about GST"

T. M. Thomas Isaac, Kerala's finance minister, is visibly happy with India's historic shift from an origin based taxation system to a uniform destination based Goods and Services Tax (GST) from 1, July. In an interaction with Business Today's Joe C Mathew, Isaac tells that the move will clearly benefit Kerala as the growth in its tax revenues will now be close to, or even match the growth in its expenditure.

Excerpts:

Will GST result in overall price increase?

I have been arguing, all the while, that GST will not result in price increase. That was because 90 percent of the goods will now have less tax than it used to be. But, now I see a chance of prices going up. That is because there is no guarantee that MRP of goods will be lowered. You have a GST which is apparently higher than the VAT, but lower than excise and VAT. There is a possibility that this may be utilized by manufacturers and traders to hike up the price. The challenge is whether the corporates will be willing to transfer the gains and lower the prices for the consumer. It's good that we have an anti-profiteering clause, but it should be used sharply to make sure the consumer also benefits. Or else, price increase will happen.

Will the transition be smooth?

It is not a smooth transition, politically, and technically. Politically, opposition has boycotted it. GST is an important tax reform, but there is nothing great about it. It is applying the principle of VAT at a national level. To say that India's GDP will jump 2% because of GST is absolute nonsense. On the implementation front, GST returns, e-way bill are not yet ready. There is disagreement over the rates.

What about technical glitches?

Technical glitches will be managed. We have the capability to do it. After all, it is not as complicated as a Moon mission.

Has the multiple tax rates complicated the GST structure?

I have never demanded lower number of rates. Only someone who is completely oblivious of Indian reality can do it. The fact is that there are commodities consumed by the rich and commodities consumed by the poor. Deciding on one rate would mean the price of commodities consumed by the rich coming down, and the commodities consumed by the poor going up. In fact, our contribution to the GST Council was the multiple rate structure. You can have equity in transaction only through multiple rates. There has been a very long battle to have one single rate, then it became two, people argued for three, but we were able to make it 4 plus 0, i.e., five. I vehemently argued for such a structure.

What will be its impact on Kerala?

Kerala government's expenditure is increasing 14 - 15 % every year. But on an average, our revenue growth during the last four years was around 10%. It is not a healthy trend. We cannot cut down on our expenditure, the only way out is the increase revenue. GST becomes crucial here. We hope to implement GST in such a manner that our revenues increase 20% a year.

Did GST council consider all your suggestions?

The council has included many of our suggestions. We had argued for more powers for states in tax administration, we did not favour a uniform rate for SGST and CGST and instead called for a band which could be slightly lower or higher than the CGST rate. Third point was on revenue share. Instead of the 50:50 share, we wanted 60 % to be given to states. We did get some control in tax administration, but the other two demands were not considered.

What next for GST Council?

We need to fine tune many of the loose ends, including rates and procedures. We need to ensure that the hiccups are short lived. Also, some of the tax rates might have to be relooked. For example, classic ayurvedic preparations should be treated at par with allopathic medicines. On coir, we were expecting 5 % GST, not 12, as has been decided now. The council will have to meet, at least once in a month to sort out large number of issues that will crop up after the implementation of GST.

Will petroleum products be on the agenda soon?

Petroleum and other exempted products are not on the agenda at all at the moment. We should accept the complexity of Indian economy. If the Centre is so keen, let them let go the additional cess they have been imposing on petroleum and set an example for the states to follow.