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Last Updated : Aug 04, 2016 11:40 PM IST | Source: CNBC-TV18

Economy can grow by over 8% after GST rollout: Shaktikanta Das

On Wednesday, the long-awaited GST Constitution Amendment was passed by the Rajya Sabha. In an interview to CNBC-TV18, Economic Affairs Secretary Shaktikanta Das says that it can be implemented on April 2017 as most of the preliminary work is done.

The Upper House of the Parliament, on Wednesday, passed the Good & Services Tax (GST) Amendment opening the way for further discussions over minute details by the GST Council.

While the Constitution Amendment Bill has been passed, main question remains whether GST will be implemented from April 2017. The Economics Affair Secretary Shaktikanta Das believes that this is possible.

Discussing the near-term impact of GST, Das says: “There will be huge improvement in sentiments and it will generate economic activity.” Consumption of services will rise as corporate and businesses will work to adjust existing systems with GST.

Das is anticipating an 8 percent plus gross domestic product (GDP) for India over the medium-term.

Most of the preliminary work has already been done by the government and GST Council, he says, adding that next step is the process of ratification of states by 50 percent.

GST Council will also decide on reasonable GST Revenue Neutral Rate, which can be slightly lower, he says. Currently, two ranges of rates are under discussion - 18 percent and 22-24 percent.

Below is the verbatim transcript of Shaktikanta Das' interview to Latha Venkatesh & Sonia Shenoy.

Latha: Do you think April, 2017 is doable?

A: April, 2017 is possible. It is possible and already a lot of work is going on simultaneously. The goods and services tax (GST) draft legislation has been prepared and it has been circulated to all the states and the draft legislation is an outcome of the effort between the Finance Ministry, the Revenue Department and the State Finance and Taxation Departments. So, there is a lot of convergence in thinking with regards to the draft legislation, it has been circulated, so, it is possible.


However, simultaneously the preparation of the rules under the various tax laws under the GST law is also under preparation. So, the process of ratification by 50 percent of the states, that is the next step which needs to be taken and one would expect that to go through very smoothly considering the fact that it has been a unanimous decision of the Rajya Sabha yesterday, so the process of ratification by states will go through very smoothly and then a lot of work has already been done with regard to the draft legislation and also with regard to the draft rules.

Sonia: The next big question on everyone’s mind is the revenue neutral rate or the standard rate. Everyone is hoping for 18 percent, but yesterday, most states indicated that they want a rate between 20 and 24 percent. So, do you think that 18 percent rate would be wishful thinking now?

A: With regard to the rate of taxation that is a matter which the GST council will decide. The GST council chaired by the Finance Minister and consisting of all the state finance ministers, it's a decision which will be taken.

We have two ranges. As you are mentioning, there is one report which says 18 percent, there are the states on the other side some of which believe that about 24 percent would be reasonable. Now let me mention that revenue neutral rate and the actual GST rate are two different things. Revenue neutral rate is basically, given everything constant, given everything as per status quo, what is the rate at which there is no loss, no gain to the centre or to the states.

Now that takes into account the status quo as of today. Then, you have to build in the fact of buoyancy of the economy, you have to build in the fact of buoyancy of tax collection, you have build in the fact that the tax net will also widen and almost all transactions in the economy will come under the tax net. So, the buoyancy factor and the tax robustness factor, when that is considered, then the rates are likely to be slightly lower. So, therefore a considered decision will be taken, I am sure the GST council which consists of all political parties and all state governments and the centre, they will take a considered call and arrive at a rate that is practical and that is reasonable.

Latha: We spoke to a whole range states and they thought 18 percent came out of where, that is according to them just a theoretical construct. They completely were against any rate under 20 percent. I could tell you that. But be that as it may, the tax confusion or the understanding of how to pay tax, if for instance State Bank of India (SBI) with 10,000 branches in all the 30 states of India bought something which is a service, then how does it get VAT? Do they have to have 30 GST registrations? It looks like an enormous nightmare. Are the government and the GST council thinking through this or has it already been thought through?

A: This is already under consideration because the banks had already brought this to the notice of the government that big financial institution which has countrywide presence; whether they need to do multiple registrations or they do single registrations. There are challenges, for example, there is the issue of multiple registration which they are pointing out but then at the same time, if you have a single registration, let us say SBI is headquartered in Mumbai, all the services which SBI is rendering across the country, whether the entire taxation will go to Maharashtra alone, obviously, it will not because the transactions are taking place across the country. So, this is an issue which is already under consideration and it will be suitably addressed when the GST rules are specified and there will be more clarity in the days and weeks to come and one has to be a little patient.


Latha: What is your sense? These are the things to be sorted out. How to apportion, what should you consider a service being consumed where? A credit card swiped in Jaipur, but the consumer is from Bombay, he is the guy who has to pay the money. So, exactly who gets that money? Do you think all those rules and large heartedness on the part of the states to agree to these rules and the IT network, all this will be done by April, 1?

A: A lot of discussion has already taken place on this. A lot of application of mind has already gone into this. Let me just take the example, we are now talking of in an international plane, we are talking of base erosion and profits shifting (BEPS). The contention of countries like India is that multinational companies, wherever they are generating revenues, the tax has to be paid there. But then there is the counter claim by the developed countries where the multinational companies are headquartered. And under the BEPS mechanism there is a discussion going on about the sharing of the profit, and to prevent profit shifting. So, here also, within the Indian federation, we are already having a lot of discussion as a part of the empowered committee of the state finance ministers.

The finance ministers and state finance secretaries along with the Union Revenue Secretary and the Revenue Department, they are discussing about all these aspects of dealing with credit card transactions, dealing with companies, big multinational companies which are rendering services headquartered in particular location but having multiple state presence, all these matters are under consideration and I am quite confident that they will be addressed suitably. I do not want to pre-judge the issue and go on spelling out all the details because many of it is still, I can call it work under progress. And there will be more clarity as I said earlier, in the weeks to come.

Latha: The impact on inflation, all countries, as my colleague was explaining, have gone through a bout of inflation as soon as GST is introduced and services do form about 26 percent of our consumer price index (CPI) index. Is it not likely that we are going to see a bump up even above 6 percent?

A: The concern about inflation is coming from two sources. One, the services and second, the goods; and with regards to the services, already recognising the fact that the GST will be in place sooner or later. However, for the last two years, the service tax has been very gradual and very slowly they have been increased and GST council, obviously they are aware about the impact of the eventual rate, the GST rate and what rate will be applicable to services. I am quite sure and the sense that I have is that a very considered call will be taken and a reasonable rate will be adopted, so far as the services are concerned. 

So far as goods are concerned, it is a well-known fact that the whole India now becomes one common market. The flow of input tax credit will now flow seamlessly across the country. However, currently what is happening is, if a manufacturing unit is located in one state and if he is purchasing raw material from all other states then the input tax credit with regard to their value-added tax (VAT) payment is not available.

Today, after GST, India becomes one market and there will be seamless flow of input tax credit. So typically it will bring down the cost of production and it should not lead to any inflation.   

Sonia: We have spoken about the impact on inflation but want your thoughts on growth as well. What kind of GDP growth can we realistically assume over the next one-one-and-a-half years and in the very near term what kind of impact do you think the GST could have on GDP considering that higher taxes on services could impact the consumption of discretionary services in the very near term. So both near and longer term, what is your assumption?

A: With regard to the growth immediately, now that the tax rate, the GST constitution amendment is passed, there will be huge improvement in the sentiment; the sentiment factor will play an important role and it will definitely generate a lot of economic activity.

There was discussion perhaps on your channel, asking questions about how prepared corporate India is. Let me take on that point. Now that the constitution amendment is passed, the corporate sector in India, the businesses, they will have to suitably adjust their business models, their computer systems, the way the accounts are maintained, the way they have to reengineer and reorient, readjust their business in the context of GST. So a lot of consumption of services will now take place in the coming months because everybody will now start preparing for the GST and that will definitely contribute to the GDP. 

This year because of good monsoon and the other measures, the transformative measures which the government has undertaken as a part of the Budget, already we are looking at growth close to 8 percent and the impact of GST will definitely develop stronger roots in the medium-term. Obviously from day one, one cannot expect the results to show but even in year one there is likely to be some impact and in the medium-term, in two-three years, the full impact of GST would be felt and we should look at other things going favourable. We should look at 8 percent plus growth in the medium-term.

Latha: The question on everyone's mind after yesterday's Rajya Sabha debate was, it is going to be a fiscal bill, isn't it? It won't be a money bill, when the GST bill comes?

A: As the finance minister has clarified, the government will follow the constitutional provisions. The constitution article 110 defines what the money bill is; article 117 also describes and defines what financial bill is. The government will go by the constitution and only when the bill is ready, only when we know the content of the bill then only a decision can be taken whether it is a money bill or it is a financial bill and in any case eventually the Lok Sabha secretariat, the speaker has the final say as per the constitutional provisions.

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First Published on Aug 4, 2016 08:46 am
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