Meeting the April 01, 2017 GST deadline is a race against time, said GST Panel Chairman and Bengal Finance Minister Amit Mitra in an exclusive interview to CNBC-TV18’s Archana Shukla.
In his first television interview since the GST Bill became a law, he said that the panel would have to work on a war footing if they were to ensure that the Central Goods and Service Tax (CGST) and the Integrated Goods and Service Tax (IGST) Bill were passed in the Winter Session. “If you're going to do it at war footing every day, every week, where everybody becomes available, attempt will be to see how this can come up, within a certain space of time,” he said.
He said though the Centre's preparedness as far as the goods and services network was concerned is commendable but not ahead of the curve.
On the GST rate, he said it would be difficult to hazard a guess and preemptive to talk about it.
Below is the verbatim transcript of Amit Mitra's interview to CNBC-TV18's Archana Shukla.Q: Your state has been one of the biggest proponents of goods and services tax (GST). What happened, what went wrong, why did the state traced back as far as the GST bill was concerned?A: I don’t think that the state traced back at all. There was a special session called for a very, very difficult and important subject changing the name of the state and that involved 3-4 hours of discussion. There is also dengue issue which opposition wanted to raise and Mamata Banerjee is gracious in having discussed at the democratic level that required several hours. We had a third topic which related to raise again by both the government and the opposition what would be the centre-state relation vis-à-vis flow of fund.Now if you have to do a GST in the middle of that one day session it will require at least 2-3 hours of discussion according to demands made by both side of the floor. So, West Bengal led by Mamata Banerjee has been a biggest supporter of GST. It was we who helped the most in not only in Lok Sabha, but in Rajya Sabha as well.In 2009 in our manifesto we had GST. So it is a matter of time and already I believe only you needed 50 percent states to ratify and it has been ratified and after the assembly session where we could not accommodate because of the local serious pressures of name change of the state. I have chaired an empowered committee meeting as a finance minister of West Bengal where we called all the industry associations, company secretaries, chartered accountants and small and medium enterprises. So this is a work in progress.Q: By when do you think would this be passed by your assembly now?A: Well, it is a matter of next assembly meeting whenever it comes we will bring it up, but at this time there is practically no need to go through this process as a binding issue, because president has already given assent. We are the most important supporters of the GST for the people of India.Q: Which is why it came as a surprise to many and they said that possibly there are some issues that you want to sort out before you pass the bill.A: Issues are parallel issues, issues which relate to federalism in India. For example today those are nothing to do with GST. For example over Rs 6,000 crore have not been by the state including 100 days work compensation, so it is an ongoing process. We have taken 26 percent equity in a deep sea port. We are also building our own state ports, there is conversation going on. So that in a state-centre relation we stand for federalism, this is an ongoing process. It is a different track altogether. As far as we are concerned the relationship government-to-government goes on with its processes.GST is for national interest and therefore Mamata Banerjee stood as a leader in the country in supporting GST, so it will continue and I continue to chair the empowered committee of finance ministers on behalf of my state.Q: So what happening as far as the empowered panel meetings are concerned in terms of the discussion or rather the differences as far as rate is concerned. Some states say it should be raised up to as much as to 24 percent, some say it should stay around 18 percent. How are those discussions going and where do you think it will settle?A: I think the key point that your viewers should know is there are multiple rates given by researchers, so the chief economic advisors to the government of India suggested 15-15.5 percent in the average rate, then you had at one time National Institute of Public Finance and Policy suggested 27 percent and there is Dr Vijay Kelkar’s committee report which came as the first report on GST suggested 12 percent. This is a matter of revenue neutrality so that state revenue is preserved. Different states may have different views but what has happened is the empowered committee has fully given support unanimously to the fact that we have two principles. Principle one GST rate should not be such that common people get inflationary pressure, then what’s the point of GST after all end of the day it is for people. Second principle is it should not be solo that states do not get revenue, centre has to compensate for 5 years and they don’t have the money to compensate. Despite constitutional process they may get into a problem, so it should be an optimal rate, not a maximal rate.Q: Where is that optimal rate coming up to?A: This is exactly what the GST council will debate in the coming weeks. I am sure it will be a full debate.Q: Do you think between 20-22 percent is where it should land in terms of a cap?A: It would be very difficult for me to hazard a number as a guess. It would be pre-empting the views of my other finance ministers of states.Q: If I talk to you as the finance minister of Bengal, what would your view be?A: I would not present you the view here. I would present it at the GST council. The reason is, we have to discuss it, we have to listen to each other, only then after listening to arguments of each other along with the union finance minister who is the chair of the GST council, we will arrive at a decision. It is too pre-emptive today for me to just give you a rate. It would be unfair and wrong.Q: I am not asking you to give me a rate and say that this is the rate that we will finalise because obviously it is a discussion, there are so many states and union territories that would be discussing it. However from the perspective of a finance minister of a state, if you look at your revenue, if you look at the taxation system and stuff, where do you think the cap could come up to?A: I don't think I can hazard a number for you because as chairman of the empowered committee I cannot say, I just cannot give you a number. Let it come up in the GST council which is happening very soon, let it be discussed. It is a national issue, this is a very serious issue. I have given you the principle which the empowered committee has defined unanimously - not so high that the industry passes on that to the consumer and there is inflationary pressure. In fact during the discussion of the empowered committee with the chambers of commerce one of the questions raised by finance ministers was, when taxes are raised industry tends to pass on those taxes to the consumers and why should they bear it? When taxes get lowered which GST may lower the tax incidence to the industry, will the industry pass on this to the consumers?So, I would say that we have defined the principles at the empowered committee of all finance ministers across political parties and across states.Q: For the panel there are two months to discuss and come up to a consensus as far as all the issues are concerned. Do you think that is a fair enough time?A: It depends on the intensity with which this is conducted. If you are going to do it at war footing every day, every week where everybody becomes available, attempt will be to see how this can come up within a certain space of time. Also it will depend on the number of industrial issues that come up. For example today an industry has 5 percent value added tax (VAT) and now it is going to face X percent revenue neutral rate (RNR), that industry may be employing 20 million people, that industry will come up and say to you please don't change my 5 percent to a much higher number. So, that has to be discussed in the GST council. There may be categorisation of areas, where there is a sin good, there are luxury goods, there are non-luxury goods, all this has to be defined to the satisfaction of the entire GST council. So, all this will come on the table and already the empowered committee has received many representations, it will go into 6000-7000 pages of representations from the industry because we invited that as there should be dialogue. So, all this has to be collated, structured, made into some kind of a framework and then on principles this will be discussed at the GST council.Q: You spoke about how many representations you have got and the kind of issues that you would be facing and that need to be ironed out before the empowered committee comes up with the final consensus. Looking at that list, what do you think are the biggest issues that could take a lot of time to resolve?A: There are two parts to this, one part is the government and governments preparedness. That itself is broken into two, preparedness of states one at a time and preparedness of the centre. Some states may be way ahead in their IT preparedness. For example West Bengal has received the highest award for integrated financial management system. I am not sure how many states have reached the state of integrated financial management system.In West Bengal not a rupee is spent by the state by cheque or by cash.Q: So, you are saying that as a state West Bengal is pretty ready to take on GST the moment it comes?A: The internal structure still requires work. For example many directorates are there within the state system, whether it is West Bengal or any other state. There is a sales tax, there is a VAT directorate. There is a directorate for stamp duty. There may be a directorate for entry tax, all these directorates will have to merge into one in every state which requires a huge administrative process. So, it is not the IT preparedness only.As far as centre is concerned we have a GSTN, that is the network, which is the magnum network that is going to clear millions of transactions viz-a-viz their taxes.Q: How is the preparedness on the GSTN?A: I think the preparedness on GSTN is pretty far. We have been working on it for two and half years. Since I have been on the empowered committee, we have been working on a GSTN process where officials have been meeting almost every month for the last two and half years.The way that it works is, states will provide approximately one fourth of the resources, centre will provide another one fourth, so 49 percent will be held by state and centre in terms of SPV - a company. 51 percent will be held by all kind of financial institutions. This model has been put in place. Working through this professionalised model that this whole GSTN system has been setup.Therefore as far as GSTN is concerned it is quite ahead in the process but I cannot claim that it is ahead of the curve.Now the curve will have to come into place, but it is way ahead. As far as individual states are concerned we will have to research that. I may feel I am prepared, but I have to merge my direct rates though my IT preparedness is very high and I have merged my direct rates. Now some states may not have that high a level of IT preparedness and they too have to do IT preparedness and merge and centre itself will have to adjust because there is integrated GSTN along with state GST and centre GST so all this is a convergence that has to happen.Don't forget it is the largest reform in the world ever done. There has been no GST which country had exactly the word GST, Canada, Australia, New Zealand and recently Malaysia, so there is no one billion per people country which has GST today in the world. This is the world biggest fiscal experiment that is ever being done.Q: You are saying it would take time for the final shape to come up?A: Time depends on whether it is on war footing. It is the intent, the drive, the engagement, so I cannot pre guess the kind of time.Q: The other two big contentions one has been on the compensations and the other has been on the exemptions. How are you preparing as the chair of the empowered panel to deal with these two issues?A: We have received as I said thousands and thousands of pages of representations, which relate to these issues. The question being asked by industry is today I have an exemption under the VAT regime will that exemption continue. I have an exemption let us say the central excise tax will that continue. I may have an exemption on service tax will that continue with all of these will get merged, so these are questions they have raised and they have given justification as to why this exemption should continue, then there is compensation which will or that will continue, so this is a very important question that GST council will have to discuss industry by industry as per their representations.Q: If the exemptions are lowered, would the compensations go up?
A: This is something that we will have to go into industry by industry at a time and within industry.
Q: So, the five year period of compensation that has been spoken about.
A: That compensation is guaranteed by the constitution. There is no debate on the compensation of states if they fall short of their revenue. There also, your viewers must know, the compensation is based on a trend rate. So, last three years, I have grown, my tax collection has grown by let us say 10 percent. So, this year, it should have grown by 10 percent. But due to whatever circumstances of a drought or excessive rain, my tax collection has grown only by 6 percent. I will be liable to be compensated by the centre the additional 4 percent loss. So on that, I do not think there is any debate. There is total clarity and constitutionally guaranteed.
So, if you meant by compensation, compensation to the states - that is a very clear picture. Where there are issues is in terms of exemptions of individual industries. Now, question is if goods and services tax network (GSTN) gives you a lower tax incidence, at the same time, you keep all the exemptions of the past then that needs to be debated. So, somebody may come up and say my industry is very socially important and make a case for that and say therefore my compensation should continue or currently, my VAT rate is 5 percent. We are an industry that has national importance, the case we made or very labour intensive employing 10-20 million people. In that case, mine should continue. So, there is naturally a proclivity of industry to push for maintenance of exemptions, lower taxes which are there today so that is their logic, all this has to be debated in the GST.
Q: The e-commerce industry has said that they should be exempted from the GST taxation and I was reading somewhere that you are not in favour of that.
A: This is not true. We have not come to a conclusion. They have made representations. By you I mean me personally, we have just debated in the empowered committee. So, the question that was raised in the empowered committee by finance ministers, I only chair it, I do not give opinions, was that do you add any value or not. If you are saying that you are a pass through industry, where you buy, which has paid tax, you sell, which is consumers pay tax and you are only a pass-through, then do you value add? If you value add, should you not pay a tax?
These are very interesting debates. We have to learn from best practices elsewhere in the world. What does Canada do with regard to this kind of e-commerce space selling in the country, we need to know. We need to understand what Australia does, what New Zealand does, they are developed countries. So, are there any best practices in that? This will be debated in the GST council. So, I cannot give an opinion. I am only explaining to you.
Q: There are too many ifs and buts that need to be talked about, talked during the empowered panel.
A: It is not ifs and buts. When you have the world’s largest fiscal reform underway, in over USD 1 billion people, with almost three dozen states and union territories, with its own organic processes, naturally there will be a lot of issues to smooth out and to iron out. It took so many years for valued added tax (VAT). So, imagine that finally when GST becomes operational, it is not the passing of the rule, operationalisation, there will be problems in operationalisation, there will be glitches.
Q: But the two month’s time seems to be fairly on the lower side.
A: I really do not know what the two months mean because this is a bill that will have to be discussed which will be placed in parliament.
Q: But do you think you are confident that in the winter session the bill could come up?
A: This is something you have to ask the central government, because this is a bill that will be presented by the central government, not by us.
Q: But it is only after the empowered panel comes up with their final...
A: Only after the GST council comes up with a position which empowered committee has only fixed the principle of the neutral.
Q: So it is all interlinked eventually to the discussions that the finance ministers would have.
A: It is very difficult for one to predict in a substantive and a statistically viable or robust manner.
Q: The April 1, 2017 deadlines that Prime Minister, Narendra Modi and the Finance Minister has been saying that overall we are kind of ready to meet that deadline. Are you confident that that deadline could be met?
A: If I were the Union Finance Minister or the Prime Minister, you could have asked me that question. I am only a Finance Minister of a state and Chairperson of the empowered committee. Therefore, I don't think I am in a position to give you an answer because once the issues come up they will have to be ironed out. Now how many issues will come up in the GST council is yet to be seen. So it depends on how many issues. Now, one may be able to skirt some of these issues and say that we will not discuss this under the GST just now; we will leave it aside and then solve it in stages. So it will all depend on GST. It is not really humanly possible in a statistically robust manner to say that x number of days, we will definitely do it, we will not do it, it will depend on whether it is war-footing where everybody is continuously meeting, and number of issues which are complex, are fewer.
Q: Hasmukh Adhia said we are ahead of the curve as far as the deadline is concerned.
A: I think Hasmukh Adhia was probably speaking on GSTN - that is the network. It is true that in the network we are perhaps pretty much there. Now the rest you will have to ask Hasmukh Adhia, I did not hear what he said. You will have to ask him what is it that what was in his portfolio when he said this. He will be the secretary of the GST council. So he will have to face all these challenges and issues. So, you will have to ask him what he meant.
Q: But to you, there are too many issues.
A: I would not say too many issues. For a reform of this magnitude, there are known issues, there are unknown issues. There are clarities and there are surprises. So, under these circumstances, once the GST council unfolds, you will get a sense of how much of surprises and how much of clarity, how much of known issues, how much of not-so-known issues. Therefore, one has to move forward and that is the whole idea of momentum to move forward.
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