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7 March 2017 Editorial

 

7 MARCH 2017

Last mile concerns

More than six months after the Constitution was amended to enable the Goods and Services Tax (GST), the Centre and States have managed to find considerable common ground on the long-debated indirect tax system, overcoming seemingly irreconcilable differences that cropped up along the way. On 4 March 2017, the GST Council approved final drafts of the Central and Integrated GST Bills, which should be placed in the public domain as soon as possible. With the law to compensate States already cleared, the only pending legislative negotiation left for the Council, which is expected to meet again on March 16, involves the State and Union Territories’ GST bills. As these bills secure assent from State Assemblies and Parliament, and swiftly, the operational rules for the GST must be readied. Industry would need at least three months after that to prepare for the transition from the present system of myriad State, Central and local levies on goods and services. Moreover, switching to a new indirect tax system in the middle of a financial year will bring its own subset of accounting complications. The Central government should resist a pushback on the roll-out date, and expedite efforts to ensure everyone is ready to get on board the new system with early clarity on what rates would apply to different goods and services.

Clearer communication of intent is equally essential. In industry circles, the introduction of a peak 40% tax rate in the GST Bills has set the cat among the pigeons. What started out as a single tax, single market dream for industry has now degenerated into five tax rates, a cess on top, with additional uncertainty about tax rates. Just as effective excise and customs duties are lower than legally specified rates, working in a peak rate for the GST could well be justified. In the current rate structure, a cess has been proposed on luxury and sin goods over and above the highest GST rate of 28%. The cess would finance compensation payouts to States for the first five years. After that, it could be replaced with a higher GST rate to retain the same tax treatment on sin goods, without fresh parliamentary approval. But this intent should be stated explicitly and rates must not be tinkered with in the GST’s first five years at least. It is still not too late to settle another major worry for industry that strikes at the very heart of enterprise. The GST’s anti-profiteering penal provisions are far too vague and draconian, and could discourage companies from making efficiency improvements in supply chains if they are required to pass on the entire benefit to consumers. Lastly, the Chief Economic Adviser has made an impassioned plea to bring real estate under the GST net, linking it to the war against black money. A road map for eventually bringing such excluded sectors into the GST net could hasten the process.


The Tawang test

China’s statement that it is “gravely concerned” over the government’s decision to allow the Dalai Lama to visit Arunachal Pradesh’s Tawang monastery in early April, and that it would “seriously damage” bilateral ties, is unwarranted. It is also an unacceptable escalation of rhetoric over an issue that India and China have engaged with each other on, including during the visit by Foreign Secretary S. Jaishankar to Beijing. The controversy over the Tawang area goes back to the Shimla meet of 1914, when the Chinese representatives just initialled, and didn’t sign, a trilateral agreement with British India and Tibet. Later, in 1959, when the current Dalai Lama led Tibet, he came into India through Tawang. He has not visited Arunachal Pradesh since 2009, when he retraced his 1959 journey. On that occasion too, his itinerary had evoked threats from Beijing, but eventually bilateral concerns outweighed them. The Chinese government would do well to not allow tensions with India over the issue of Arunachal Pradesh to spill into other spheres of engagement, and perhaps to also recall its own talks with representatives of the Dalai Lama that broke down after nine rounds in 2010 when it seeks to castigate him and New Delhi for their engagement. Beijing’s objections over access for the Dalai Lama as a spiritual leader to a religious shrine obviously cannot be allowed to intimidate India into restricting his free movement.

At the same time, New Delhi must calibrate its moves to avoid misperceptions that it is indulging in political power-play. Recent developments, such as visits to Tawang by American diplomats including the U.S. Ambassador, and an official dinner at the U.S. Embassy attended by a Minister and leader of the “Tibetan government in exile” based in Dharamshala, could be interpreted as messages aimed at China, even if they did not signify any policy change. Beijing has been touchy about visiting delegations from Taiwan and the grant of visas to those it perceives as dissident activists. Pinpricks cannot substitute for policy and New Delhi should keep its focus on the major issues between the two countries. The bid for Nuclear Suppliers Group membership and having Masood Azhar placed on the UN terrorists’ list have occupied much of the bilateral canvas, while the larger issue of the boundary resolution hasn’t been addressed adequately. Statements last week from former Chinese special envoy Dai Bingguo, who suggested that flexibility from India over the “eastern boundary” in Arunachal Pradesh could yield flexibility from China over “other areas”, that is, the western boundary in J&K, are significant. If the statements are an indication that the 20th round of talks between the special representatives expected this year will see an opening for progress, then that is a more worthwhile goal for New Delhi and Beijing to be preoccupied with.

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