Equal voting rights to all states not acceptable: AIADMK on GST

All states having equal voting rights is not acceptable to AIADMK, says Spokesperson, K Pandiarajan talking about Goods of Services Tax (GST). AIADMK is against GST in its current form as it believes Tamil Nadu is being penalised for being a producing state considering it contributes 10 percent to the GDP despite having only 4 percent of the country's population.TN produces more than it consumes. he says, adding shifting of tax levy from the point of origin may hurt the state's revenues.He says, the party is far from a consensus to approve GST due to the various concerns most notably on the issue of compensation for five years due to the loss in revenue. Tamil Nadu may lose Rs 9,270 crore in revenues every year.Four of the ten issues the party has raised has been addressed by the government, says Pandiarajan. However, on whether the party will vote in favour of or against the bill, he says the CM wil take a final call.Below is the verbatim transcript of K Pandiarajan's interview to Shereen Bhan on CNBC-TV18.Q: The empowered panel on the goods and services tax (GST) met in the capital yesterday. Has there been any change in the AIADMK’s position when it comes to the GST? Do you support the GST Bill in its current avatar? A: No not really. We raised about 10 issues initially. Our opposition is primarily based on the fact that Tamil Nadu is a producing state, it is an exporting state, we produce more than 50 percent of what we consume and we are also unique from that sense. While as a philosophy having a unified tax administration system across the country for both goods and services is acceptable to us, out of the 10 issues we raised, about four of them have been addressed to our satisfaction. However, the key issue is the loss that we will suffer as an origin state over about five years. We have asked for compensation, at least five years though it is a permanent loss of around Rs 9,270 crore based on the current consumption and production per tonne. So, this is what we have asked. The second key thing we have asked is constitution of the GST council. We believe we don’t need a council like this in the first place as a statutory body but if you must have that, it can’t have the structure where central government has a veto. We would like to see a council where states hold higher percentage of voting rights in proportion to their economic size. For instance, Tamil Nadu contributes 10 percent to the gross domestic product (GDP) to India though we are only 4 percent of the geography and only 6 percent of the population but we contribute 10 percent to the GDP of the country. What our CM has proposed is a voting percentage in-line with the membership of Rajya Sabha. In some sense the weightage of states have been factored into the Rajya Sabha representation for each of the states. So, we would like it to be along those lines and some of the aspects relating to petroleum being kept out of GST. It should be done permanently; that is what we are saying. More importantly, this proposal relating to additional levy of 1 percent tax on the supply of goods, we are suggesting that the origin states be allowed to retain 4 percent of the central GST part, of the inter-state GST which would allows us better cash flow; that is really a method of allocation, method of charging which is what we have suggested. Sum and substance of it is that the kind of loss, of fiscal autonomy that each of the states will have to go through, this whole process, compensation cannot be in the hands of a parliament which you need to pass through the parliament and things like that. We believe that that is not going to work. It should be a simple and straight process for compensation where the central government has to agree with states like us. What we want is a constitutional rather independent body. Q: You have said that out of the 10 demands that the AIADMK has raised, four demands have been met. Even as far as compensation is concerned, the Chief of the empowered panel, Amit Mitra, in his conversation with me yesterday said that the center now has changed the wording or will change the wording to guarantee compensation for five years to state governments. Does that satisfy you because that is one of your key apprehensions? Even as far as the 1 percent manufacturing tax is concerned, there seems to be unanimity or consensus at the state level that the 1 percent manufacturing tax is distortionary and hence must be done away with. So, if the 1 percent is done away with, will that be a deal breaker as far as the AIADMK is concerned? A: There is some movement but the key thing is the quantum of compensation or the principle by which the compensation gets arrived at. In my view, we have given a picture as to how much is the loss to be suffered by Tamil Nadu in this case, so, Rs 9,270 crore per year. It is a permanent loss. To compensate it over at least five years is what we have sought.In terms of the GST council, we have some serious question. We can’t have a GST council with center having veto and all states being equal in terms of the voting rights because that is what they have come up with which is not acceptable to us. CM has specifically spoken about this to the Prime Minister and Prime Minister has let the empowered committee of state finance minister’s to take a call on this issue. That is as critical an issue.So, in that sense, the compensation in terms of its quantum and the compensation, in terms of the way it gets arrived at and the continuing controlling body, GST council, its constitution, its voting rights, all those are key issues for us. The other issue that we have asked for is to enable states to levy higher tax on tobacco.Q: Yesterday was that crucial empowered states finance ministers’ meeting in the capital. What is the feedback that you have got post that and do some of your apprehensions at least get addressed post yesterday’s meeting or do the apprehensions that you just talked to us about an articulated here on CNBC-TV18 remain.A: I think they remain. In my view the only moment which has happened in yesterday as I understand aspects relating to tobacco, aspects relating to permanency of letting petroleum and petroleum products out of it and some of that has been addressed, but the key crux of the issue for us from Tamil Nadu’s point of view as Tamil Nadu is a state which is investing hugely in the welfare measures and for us this blow of another Rs 9,270 crore per year will really not be something which we can absorb at all, so that’s clearly the principal of arriving at the compensation where I don’t see any great moments which have happened and rest of the things. So rest of the thing so if I have to say out of the rest of the six issues, two issues seem to be moving towards some kind of a resolution, but to us the key crux of the issue is compensation and the method at which it get arrived and the institutional mechanism to have a control over GST administration, which is the GST Council for us.Q: We don’t know whether the government will table the GST bill in this session or not, the political climate seems to have changed in comparison to what we saw last week, but if it does and while the government maintains it wants to evolve a sense of consensus within all political parties, but if it does decide to push the bill through the Rajya Sabha you have 13 members of AIADMK in the Rajya Sabha will you support the bill, will you abstain, will you vote against it.A: That’s beyond my mandate to discuss here that would be a political decision our Tamil Nadu Chief Minister Puratchi Thalaivi Amma will take a call on, this is the right time, but all that I would say is that she did commit to the prime minister that the consensus needs to get evolve on these 10 aspects, which she raised with the prime minister and I think we are some distance from reaching a real consensus on this, especially, relating to compensation.And if it does happen then Tamil Nadu CM Amma will take a call on the political decision of voting for it or not voting for it, but to us it some distance, this question is some distance away because we are nowhere near the consensus on specific aspects of compensation.Q: So would it then be fair for me to say if I were to understand what you have said very clearly here that of the 10 demands that you raised 4 had been addressed, there is forward movements in 2 certainly 6 there is forward movement, but till all of your demands are met and especially as far as compensation concerns are addressed suitably and appropriately, the AIADMK is unlikely to support the GST bill?A: In the sense it is not only the quantum of compensation, it is also the process and the mechanism by which compensation get arrived and the ongoing presence of the state’s rights in administering the GST as we go along, we don’t want it to become purely a central government’s stuff it’s as much an issue about an state’s autonomy in terms of these fiscal aspects. We do see an intrusion into the state’s domain and as GST by its very philosophy and concept does attempt to create a standardised regime, a tax regime across the country. We see the value of it, but these are three aspects on which I don’t think Tamil Nadu can afford to compromise, so to my mind those are three stumbling blocks which remain and if central government does move forward with tenacity with open genuine negotiation I see over the next few weeks if they do engage in that and meet our concerns, addressed our concerns then I see a positive movement forward as far as the GST is concerned.Q: What is the feedback that you got from the meeting that was held in the capital yesterday on some of the crucial demands that you believe have still not been addressed, do you find support, do you find other state governments also willing participants in those negotiations or does the AIADMK find itself isolated, because the sense one gets is that most other state governments don’t seem to have as many issues as you raised?A: There are very few states in this country which are both net producing states and net exporting states. Gujarat is probably the one which is closest to us in terms of the potential loss it would suffer and I don’t think Tamil Nadu has engaged in any political process to mobilise support for opposition, so to give you a sense of specific yesterday’s empowered ministers meeting, I don’t have a feedback yet from the team which went there and which participated in that. I hope to get that today, but in my view I think this whole political process of the origin states coming together has not been happening and no one is as much of a net exporting state and a net production state as we are and I don’t think the alignment of forces in this decision has been along origin states and consumption states. I don’t think it so, it’s been more along political lines as of now as I can see and as you know Tamil Nadu is ploughing a fairly independent path till now in this particular issue. For us we are very clear we are not toeing the political line of any other grouping in there. Among the states we are clearly ask for compensation, right time at the right place and in the right manner.Q: I understand that there has not been a discussion on a specific rate at the empowered panel of state finance minister’s yesterday but what would be an appropriate rate both in terms of the revenue neutral rate, what is it that you would like to see? We have had the Arvind Subramanian panel suggest a rate of about 15.5 percent and standard rate of about 18 percent but given your concerns as revenue loss is concerned, what would be the appropriate GST rate to your mind?A: Tamil Nadu hasn’t taken a position on this. We have only said if it is 18 percent and if it is that 1 percent model that you have, given what we have proposed where you allow us to retain 4 percent of the central GST part of the inter-state GST then impact would be to the tune of Rs 9,270 crore. We want central government to engage in conversation with us on this; I don’t think that has been happening as yet. The track till now has been more of broad aspects and principles by which compensation gets arrived and things like that. I think this issue will close only if central government, especially the Finance Minister, directly has to engage in a meaningful conversation on settling the quantum and process of arriving at the compensation. In my view, at least to my knowledge it has not been happening as yet. Q: Would it be fair for me to then say that there has been no meaningful engagement between the central government i.e. the Finance Minister and the AIADMK because we were given to understand that meetings had taken place between the Finance Minister and your Chief Minister. Do you believe there has not really been a meaningful engagement on addressing the issues that the AIADMK has raised? A: Not really. As you rightly said, there has been a meeting with the Finance Minister at the apex level, there has also been an meeting between the Prime Minister and the Chief Minister where they have discussed this aspect also with one of the many of things which CM has presented to the Prime Minister. All that I am saying is what we expect is really this, the issue zeroing around to a specific compensation and the process of compensation.In my view and to my limited knowledge of what is happening here, as I told you, I don’t have as yet a feedback from the team which went to the empowered committee of finance minister’s, I do hope to get it by the end of the day, so, I won’t be competent to make a comment on the kind of discussions which took place and the nature of deliberations which took place there. However, as of now I am only basing it in the pre-yesterday’s conference mode and I will come back to you with the specific feedback on how things went. I think it is also not fair to keep giving out to the media as to the specific processes in a certain discussion and the negotiations. All that I would say is that at this point in time this is the stumbling block. While a few of the stumbling blocks have been removed, the key crux to us is really this. It is not really even the percentage that is being talked about, that 18 percent or the 1 percent and things like that as Congress has been engaging in; we have not engaged in those kinds of conversations. We believe that as long as it is revenue neutral which is the principle behind this 18 percent as they have proposed and we have said as long as you have revenue neutral rates, the floor rates with bands and there is an agreement on the commodities to be excluded from the GST, the IGST model aspects relating to that and key for us is clarity on the dual administrative control.These are the areas where we have genuine apprehensions especially rooted on the loss of fiscal autonomy to us and the permanent revenue loss. To me these are things which are getting addressed but I think it needs to come to a close and a consensus before it gets moved in the parliament, in the Rajya Sabha. Q: Let me ask you then, do you believe that given the fact that the Congress continues to be non-committal in its support of the GST Bill, the AIADMK as you have pointed out very clearly believes you are a far distance away from any sort of consensus being built on this issue, do you think that it is then a pipe dream to expect the GST Bill to go through in the monsoon session of parliament? A: The ball is entirely in the central government’s court and if they really wish to pursue this path, they need to quickly engage in direct meaningful conversations centered around compensation. I don’t know why they are not doing that in my view. I won’t hazard a guess as to whether it will happen in this monsoon session or not; clearly the ball is in central government’s court. We have been very transparent in this entire process of negotiation, we are probably the only state which has laid down these 10 aspects where we do have expectations to be addressed. Four are cleared, two are getting addressed, four of them are not getting touched and those parts need to be touched directly. We won\\'t evade a consensus because we have no philosophical opposition to this entire idea of GST.For us it is Tamil Nadu and its well being. We can’t take a hit of Rs 9,270 crore in a single Budget when our state’s own revenue is only around Rs 1 lakh crore. I also think we can’t be penalised for being a performing state as the last finance commission. Q: Let me end then by asking you, you said four issues have been addressed, two are being addressed. Is it going to be 10 or nothing or if the government gives you an assurance that they will meaningfully address the pending concerns that the AIADMK has raised then you will give support to the GST Bill if it were to be taken up in this session of parliament?A: That is a big set of ifs, so, I would not like to give a presumptive answer on this. We would like to see central government engage in a big conversation on the four pending issues, especially the crux of the issue which is compensation. We can’t afford, I don’t think we are a state which has that kind of a cushion to kind of live without Rs 9,270 crore kind of a loss. If I have to answer your question directly, I don’t think things will move if these four pending issues remain unaddressed.