Predicting a grim future for the Goods and Services Tax (GST), Economist and former West Bengal Finance Minister Amit Mitra said the environment at the GST council had become ‘toxic’. Mr Mitra was speaking at a national conference on the success of GST at the West Bengal National University of Juridical Sciences (NUJS) in Kolkata.
Narrating how the functioning of the GST council has changed in five years, since the new tax regime came into existence in 2017, Mr Mitra said, “There was an issue of taxation for 12 km offshore. Eight states governed by different political parties came together, and I remember Nitin Patel, the then Deputy Chief Minister of Gujarat, he came to me and said, Dr Mitra, you take the lead, and I will support you. He was BJP. Then you had BJP, you had Congress in Karnataka, Tamil Nadu, CPI(M) in Kerala, all political parties governing states along the shore had common interest. I remember Mr Jaitley took a break, we sat together and said sir, we will not let this pass so that your Centre can take over the entire taxation process. What is interesting is that it was a collegial environment, a consensus environment.”
Mr Mitra said Arun Jaitley, then Finance Minister, agreed and said he got a sense of the house. “He told the central government officials flat on their face, withdraw this. This will remain with the states. That atmosphere has gone. Now the environment in the council is majoritarian. It started when I was there. In fact, at times, toxic. And, at times, acrimonious. The saddest part is sometimes conclusions are not reached,” he added.
The GST Council is the only institution in the country today which is totally federalist, Mr Mitra further argued, saying ministers of 31 states and union territories are part of the council, chaired by the Finance Minister of India.
“There is no such institution in the country left. What concerns me deeply is the steady erosion of old federalism and consensus making. First three years, it was totally consensus-based cutting across party lines,” Mr Mitra, Financial Advisor to the Government of West Bengal, told a gathering of law students, lawyers, and tax practitioners.
Amit Mitra, who is currently the principal chief advisor to the Bengal Chief Minister, and holds a cabinet minister rank, pointed out how the GST council is not doing basic things that are mandated in rules of the GST. “Rule 6 says GST Council must meet every quarter. But they didn’t meet. So, I had to write a rather strong letter which came in the public domain and within a few days, I was very grateful that the union finance minister called a meeting. Why didn’t you call the meeting within the first quarter in violation of Rule 6? Who cares? How does it matter in a majoritarian structure?”
He also pointed out the shifting stance of the BJP on GST. “Who opposed GST? In the Vigyan Bhavan, when I was present, nominated by West Bengal Chief Minister Mamata Banerjee to represent West Bengal. A Chief Minister, then of Gujarat, strongly opposed the GST. Interestingly, the Chief Minister became the Prime Minister,” he said.
“We all came together on one condition. The bureaucrats had proposed compensation to states ‘may’, as lawyers and tax consultants you know what the word ‘may’ can mean, second up to five years. So, we came to a consensus that if the central government is willing to accept ‘shall’ in place of ‘may’ and ‘five years’, all of us here will unanimously agree. Mr Jaitley came and addressed the meeting, and we went forward. So, my point is to show how it worked and how it is working today, which is very, very unfortunate, and it will create stumbling blocks in the future on GST, if majoritarianism becomes the rule,” Amit Mitra said.
He also said the current GST structure is riddled with fraud. “Mr. Nandan Nilekani made a presentation to the GST Council, and what did he find? He found ₹ 70,000 crore of fraud up to 2020. He broke it up into two. One is excess input tax credit fraud, which was around ₹ 38,771 crore. How many people conducted this input tax credit fraud, and how did they do it? Create paper companies, create paper transactions, and then ask the government to pay you input tax credit. How many such people were engaged? 42,618 cases. Fraud of ₹ 38,771 crore only in input tax credit. Then there was another category. Under declaration. How much was that? ₹ 31,247 crore. How many people were involved in under declaration? 97,853 cases. Therefore, the total up to 2020 came to ₹ 70,018 crore according to Mr. Nilekani’s official presentation to the GST council. But this is not debated. How do you stop this?” he questioned.
Mr Mitra then cited data on frauds after 2020, provided by MoS Finance Pankaj Chaudhary in the Rajya Sabha.