After Parliament passed the landmark constitutional amendment in August and more than half of state legislatures ratified it by mid-September, several key decisions have been taken by the GST Council headed by Jaitley and comprising state representatives.
Jaitley alluded to “certain kinds of turf issues” that are yet to be resolved. “But the constitutional embargo is very clear. The entire amendment was notified on September 16, 2016, and it permits the old taxation regime to continue for a period of one year.” he said. “So on September 16, 2017, as far as the current mode of taxation is concerned, the curtain will be down. Therefore, neither the Centre not the state can go in for collection.”
According to the finance minister, there are about 10 important decisions that have already been taken through consensus. The legislations which have to be passed by Parliament and state legislatures are currently in the process of being drafted.
“I don’t see any major difficulty for these legislations being finally approved,” he said.
The only issue remaining “is very small in the larger frame of things” and the tax administration is under discussion of the GST Council as three major and some minor taxes are being merged into one.
Jaitley suggested there is a need that each assessee is assessed only once since central taxes like excise and service tax and state levies like VAT are being subsumed into one.
“You have the pre-existing (tax) machinery of the Centre and states. (It has to be decided) how the burden of this assessment is going to be shared between the Centre and states and how we cross-empower both the Centre and states,” he said further.
Saying GST will usher in a common taxation and should lead to a federal bureaucracy, Jaitley felt that both the Centre and states should figure out sharing of the tax assessment.
Ideally, he said, it should be proper for the issues to be resolved at the beginning of financial year on April 1 for the new regime to kick in. “But then, in any case, nobody has the luxury of time,” he cautioned.
Hints on lesser remonetisation
Jaitley also hinted that not all of the Rs 15.44 lakh crore worth of currency junked will be remonetised through issuance of new notes as he said digital currency will fill the gap.
Calling the scrapping of old Rs 500 and Rs 1,000 notes “a courageous step”, he said the government could do it as India today has the capacity to take such decisions and experiment boldly.
Union Finance Minister Arun Jaitley spoke on the goods and services tax (GST) and demonetisation
The move will create a new Indian normal as the one that existed for the past seven decades is “unacceptable”, he said, adding that demonetisation will help rid the economy of high cash circulation that had led to tax evasion, blackmoney and currency being used for crime. “One of the efforts of this exercise has to be that even though a reduced cash currency could remain, our conscious effort... (is) to supplement the rest with a digital currency,” he said.
As many as 17,165 million pieces of Rs 500 denomination and 6,858 million pieces of Rs 1,000 banknotes were in circulation on November 8 when the government made the surprise announcement.
Jaitley also said, “The whole process of remonetisation is not going to take very long time and I’m sure very soon the Reserve Bank by injecting currency daily into the banking and postal system will be able to complete that.”
Also, the push to use the digital mode to make payments has been gaining ground. “The manner it has taken place in the last five weeks is indeed commendable. Only a section of Parliament seems unaware of what is happening,” he said.
Once the remonetisation process is complete, it will mark “the creation of a new Indian normal because the normal that existed for 70 years is an unacceptable normal,” he added. “The 70-year normal had become a way of life for almost every Indian. It was not merely a fact that you had a lot more cash currency, far larger cash currency as part of your GDP... the economic and social consequences of that are extremely adverse.”
He made a point that dealing in that cash currency had led to a lot of aberrations in terms of tax non-compliance, currency being used for collateral purposes like crime, escaping the tax net and not getting into the banking system
“The fact that India today has the capacity to take these decisions and capacity to enforce them, to experiment boldly even when at a time when the world is looking more inwards, marks an exception as far as India is concerned,” the finance minister asserted.
Jaitley also spoke of the country’s “stamina” to sustain a decision like demonetisation, which has “clear long-term gains even at the cost of short-term inconveniences”.
“Therefore, once we have that stamina notwithstanding fringe positions taken by national parties, one would always be able to implement these extremely successfully. Long-term benefits of these are going to be absolutely clear even if we bear the short-term pains,” he said.
He seemed confident that the existing almost 75 crore debit and credit cards in the market, besides e-wallets, will help increase digital transactions. He also made a pitch that these transformations will have to be carried to their logical conclusion.
“There are, of course, even as we reform, domestic trends which are being visible on digitisation of payments,” Jaitley said, adding that the government has clarity of direction as well as a broad shoulder and stamina to sustain these decisions.
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