GST bill a historic landmark but formidable challenges lie ahead

Both politically and economically, passage of the goods and services tax (GST) bill was a major landmark. But the path from the bill to the implementation of GST is fraught with many challenges.

Getting here has taken us 10 years since P. Chidambaram, as finance minister, announced a 2010 target for introducing a GST in his budget speech of 2006. Sixteen years if we count from prime minister Atal Bihari Vajpayee’s establishment of the first empowered committee to design a GST in 2000. This is not surprising because introduction of GST will be a very major tax reform, as far reaching as any of the reforms introduced in 1991. It will completely change the architecture of indirect taxation, significantly restructure the power to tax between Union and state governments, and establish for the first time an integrated common market for the whole country. Moreover, this fundamental reform has also been subject to several conflicts of interest: between the two major political parties, the Congress and the Bharatiya Janata Party (BJP), between the Union and state governments, and between the producing and consuming states, since GST will entail a shift from a production-based tax to the one based on consumption.

A GST can be particularly challenging in a federal system. It is instructive that the US, for instance, has not succeeded in putting such a tax in place even after trying for decades. That we ourselves have got here despite all the conflicts of interest is a remarkable political achievement. Despite all the blocking and jousting inside and outside Parliament, all the political parties could finally come together to serve a larger national interest. Even the All India Anna Dravida Munnetra Kazhagam, the sole exception, did not actually vote against the bill. They simply abstained. While the changing arithmetic of voting power in the Rajya Sabha no doubt helped, credit must be given to both the ruling BJP and the opposition, led by the Congress, for achieving this political landmark.

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