As Goods and Service Tax (GST) is to be rolled out on midnight of 30 June, renowned economist Prabhat Patnaik has said the new tax measure will lead to “enormous centralisation of power” amounting to the violation of federal structure and the Constitution.
The implementation of GST, according to Patnaik, would mean that the states would have absolutely no power in deciding what tax rates to impose on what commodities, a right that was given to them under the Constitution of India.
Once you have the GST, the freedom of the states to pursue alternative strategies goes, and you have an enormous centralisation of power. If you want any change in the rates, you have to go to the GST council, in which the centre has a substantial voice. Consequently the states would become completely dependent on the centre. It is violative of the federal structure of the Constitution and is against the basic structure of the ConstitutionPrabhat Patnaik, Economist
The central government is all set to launch the GST at the midnight of 30 June in the Central Hall of Parliament in an hour-long event.
However, Patnaik says “I am not sure that it would be actually introduced on 1 July as they are claiming because there is a lot of opposition to it.” He also added that the concept is violative of Article 370 of the Indian Constitution which gives special status to the state of Jammu and Kashmir.
Since the states need to approach the GST council for any change in the tax rate and since the states are just individual representatives in the council, autonomy in fixing the tax rate goes from the state goes, Patnaik argues.
One of the basic things about the federal structure of our polity that the Constitution enshrined that the state must have the freedom to experiment with different models of growth and different ideas of development. Once you have GST, of course, the complete freedom of the states to pursue alternative strategies goesPrabhat Patnaik, Economist
Announcing the GST roll out date, Union Finance Minster Arun Jaitley has said, GST, over the medium to long term will lead to a rise in revenues of the Centre and states as the size of the formal economy will grow. He also argued that GST being a “more efficient system” will also result in better tax compliance.
However, Patnaik argued that pro-GST arguments are based on econometric frauds.
Instead of setting up a common tax rate across product groups, Patnaik argued, it would have been better if the Centre fix a minimum tax rate and enable the states to levy whatever they want above the benchmark. “In this case, they are not violating the freedom of the states,” he added.
Countering the argument that the GST will serve a uniform national market, he cited the example of the United States, where different states have different rates and exemptions but have a uniform capitalist market.
All kinds of ridiculous arguments, for instance that it is going to add 2 percent to our GDP growth rate and so on, are bandied about which are based on econometric frauds, based on assumptions which make no sense whatsoeverPrabhat Patnaik, Economist
GST is an indirect tax throughout India to replace taxes levied by the central and state governments. It was introduced as The Constitution Act 2017, following the passage of Constitution 122nd Amendment Bill. The GST is governed by a GST Council and its Chairman is Union Finance Minister of India, Arun Jaitley. Under GST, goods and services will be taxed at the following rates, -- 0, 5, 12, 18 and 28 percents.
“GST is a demand of the corporate elements in the country. The State governments are being bought off by promises that their resource position is not going to worsen in the short run,” Patnaik added.