Hopeful of GST implementation by April: CEA

Expressing hope that the government will be able to implement Goods and Services Tax (GST) in April next year, Chief Economic Advisor Arvind Subramanian said that India is entering a historic event in co-operative federalism.

While Parliament unanimously voted for the passage of GST Bill on Wednesday, going ahead states will have to their own analysis on the tax rate, he told CNBC-TV18, adding that the rate will be dependent on the policy choices made by the GST Council.

Subramanian said the GST Council will be created only after states approve the laws and added that he is hopeful and confident that the government will meet April deadline for GST.Below is the verbatim transcript of Arvind Subramanian’s interview to Sapna Das on CNBC-TV18.Q: If you heard the Congress party leaders, they have given a full endorsement on the kind of rate structure that the panel has advised. However, if you listen to the reply of the Finance Minister, he did indicate that as suggested that 17-19 percent should be a good band, but the states might possibly like to go for a higher rate just to keep some kind of cushion in mind. Where do you think this kind of interaction and discussion leads us forward now in terms of the recommendations, what is your view?A: The aim of the report that we wrote, remember there had been a previous report that had been written by NIPFP which had one methodology and then we did our report and then we had advantage of several approaches and then we had our own opinion. So, I think the whole process I think has been considerably enriched as a result of all these analysis and now the states themselves will have to do their analysis.So, I see this as a very fruitful interactive process going forward. At the end of the day everyone has to revisit his or her analysis, assumptions, data and then of course a lot of it will be dependent on the policy choices that the empowered committee makes. As I have said, what is going to be the rate on certain commodities, that is going to determine the standard rate, how much should we assume efficiency is going to improve by, how much compensation should come from within the structure of rates and how much should come from outside.So, these are all very tough policy and political choices that have to be made and that is what I think will happen going forward in the next month or two.Q: As the parliament gets ready to now clear the Constitutional Amendment Bill, it will now go to the states, 50 percent and then they will have to vet it so what is the approximate timeline that we are looking at for that, two to three months or within two months?A: By the time winter session comes along, I think the winter session will see the various goods and services tax (GST) laws and that is because after the states amend, adopt 50 percent of the states, I think we have to create the GST Council. One thing worth emphasising here and the Finance Minister made a superb exposition of it in parliament which is that we are not just entering a new era of tax policy, we are actually entering or I would say a historic experiment in cooperative federalism because we have created a new governance structure, the GST Council. It has a certain voting procedure, decision making procedure; this is really about a new era in taxation but also a new era in Indian economic and federal governance as I see it.Q:  You spoke about one of the aspects - compensation, would there be any back of the envelope estimates as to how much, a very ball park number or some kind of an estimate, some kind of discussion, negotiation, talk on this that after one year where we may be once GST is rolled out in terms of at least the revenue losses or the gains?A: That is the most difficult question to answer. My instinct is that it should not be too large. Some of it we had an analysis in our report is that the largest net producers of goods, the net exporters of goods also happen to be the states that are large producers and consumers of services. If you have a big city in your state, you are going to be a big consumer of services.So, my hunch and this is not a firm estimate is that it shouldn't be too large. There are going to be lot of teething issues, we have to work them out, so let us see how it goes.Q: Too large would be like Rs 20000-30000 crore?A: I am not going to give a number.Q: Also April 1 2017 is the intent of the government to rollout. Do you think this would be achievable because there is lot of legislative work that still remains?A: There is legislative work and also there is IT backend. However a lot of preparation has been done. I think the timelines are known, the work is ongoing and everyone is absolutely keen to meet these deadlines. So, I am hopeful and confident that we will meet the April 1 deadline.Q: Last question on service tax, be it 18 percent  standard rate, be it 20 percent, whatever is decided, right now we are at 15 percent service tax rate, so that shoots up straightaway. Will that be a one single rate or could there be a division in terms of certain important items being kept on a lower rate just like value added tax (VAT) and excise?A: What is the principle of GST? That in some ways we don't want to make or we want to stop making distinctions about what is goods and what is a service. So, that means that the standard rate should in principle be the same for goods and services, that is what gives you the biggest bank for buck and everything follows from that.