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May 07, 2018 09:28 PM | Business

Sugar cess will destabilise GST, says Amit Mitra

It is dangerous for GST council, GST itself facing so many unstable conditions, and cess on sugar is an another destabilisation process, Amit Mitra, finance minister, West Bengal.

My concern is that once you do it, all other states will ask for cess on products produced by them, Mitra told CNBC-TV18.

Edited Excerpts:

According to the (Goods and Services Tax) GST council that took place on Friday, the contentious issue of imposing a sugar cess has now been sent to a group of ministers. Along with your state, Kerala, Tamil Nadu have opposed the levy of a sugar, but the Centre is clearly pushing for the cess to be brought about. Do you believe that a cess will set a poor precedent under the GST regime?

What is interesting is that we have taken a collective decision in the GST council that we will subsume all cesses. Many states gave up a lot of advantages in this subsuming. When we decided that cesses will only be there, specifically for compensating states. This is a compensation cess and cess will be drawn from luxury goods and things like that.

We must remember that we have given even an education cess. We wanted to create a principle that no cesses only for compensation of specified items.

All of a sudden, without having a discussion with the states, just an agenda comes up and saying we are going to pick one item, sugar and put a cess on sugar.

My question is once you do that – now Kerala will ask for cess on rubber, West Bengal will ask for an additional beyond the MRP cess on jute, Punjab will ask for food grains because they have given a 14.5 purchase tax. It is a destabilising process, opening up a Pandora’s box of every state asking for cesses in their own interest.

So the very principle by which we had done away with cesses has been brought back to the table for one item. Why? Ultimately, in the discussion it started by saying that 10 states produce and all this. When I challenged it, it turned out that five states produce, out of which two are the main and one is the main entity, Uttar Pradesh. They say they will benefit the farmers. A very senior officer told me that farmers won't get anything directly. Only sugar mills will get it and they will pass it on to the farmers.

You and I know that it doesn’t happen like that at all. So what is very striking in its destabilisation process is the introduction of one cess, one item benefiting one state, what is the political economy of this? Maybe Maharashtra as well, but UP is obviously the target.

Total collection Rs 6,700 crore. That is zero, less than a fraction, much less than even 1%, 0.5% of the expenditure of the central government where tax buoyancy has happened. Direct taxes have gone up. So why cannot you accommodate Rs 6,700 crore from other sources?

Now unfortunately, the committee that has been formed which you referred to is being chaired by a BJP finance minister who was most vocally in favour of this. The only one who may have a little bit of a voice is finance minister of Kerala who is in that committee. Other three of them are BJP ministers. One is the only voice, so my concern is that that committee will come back only towing the line of what has been proposed by this government – I am worried on this count and I hope Dr (Thomas) Isaac sticks to his position – and it will say look, the committee has said, we should put this cess.

Then many of us will have no choice, but to take an extreme step because it is not possible to have. Today in West Bengal we do not grow sugar but we are consumers and you are talking about Rs 3 per kg additional.

You are saying that why cannot the Centre find 6,000 crore which is what the cess hopes to mop-up elsewhere. You are also saying that this has been done to benefit one state and that is Uttar Pradesh, but what happens from hereon. So far all the decisions in the GST council have been by consensus. If the group of ministers, as you are suggesting, decides to go ahead with the cess to side with the Centre, what then? Will it come down to vote? Will this be the first decision to come down to vote in the GST council?

That is my main problem – it will depend on Dr Isaac who is the only one from non-BJP finance minister in that committee. If it does come back, it would be a tragedy for the country. Even the Chief Economic Advisor (CEA) had strongly opposed this. I think he has said this in some interview I saw because it destabilises the whole structure of GST and I am deeply concerned that for political angles in this that these people are reading, are you going to trying to benefit one state with a particular process, which doesn’t reach the farmers ultimately. What happen next is that every state jumps in, which they will. I know states are already preparing. Kerala Finance Minister said, I want cess on rubber. I said I want additional cess on jute or fruits and vegetables. Punjab will definitely bring in the food grains. So the whole GST process could get unstuck on principals that we adopted.

And of course, the argument has made that legally the GST council can bring in a cess because there is a condition H under a big section, which says may be and this is what governments usually do with tenders also that for giving no reason, I can cancel a tender. But should we not stick to the principle which in my view is dangerous for GST council, GST itself, facing so many unstable conditions, you bring in another destabilisation process, it is shocking.

So you are saying that this sets a dangerous precedent. It opens the window for more states to demand more by way of a cess. Let me move away from the cess debate. The revenue picture doesn’t look particularly good at this point in time. Only two states have seen a revenue surplus, 31 states are seeing a revenue deficit, 17 states are seeing a revenue deficit of between 10% and 20%. West Bengal is one of them. Five states are seeing revenue deficit of between 20% and 30% and these includes the likes of Karnataka, Goa, Madhya Pradesh. Nine states are seeing revenue deficit of between 30% and 40% and four revenue deficit of over 40%. Now within the GST council what is the view? What was discussed on the revenue deficit scenario and how concerned are you?

I had said in May 2017 on record, please do not bring GST from July 1 because GSTN is unprepared, which I confidentially had information on. The structure of forms were not ready, GST-R1 then GST-R2 which should be matching, now you simplify it to GST-R3B, this is a mess.

So I said let us prepare, let us do what the whole world does, which is do pilots where it become evident. Imagine, 300 crore of invoices being uplinked per month which have to be dealt with by GST network immediately. So the result has been a very shoddy and this is typical of this NDA government, they will introduced something from the parliament central hall first time in our history after independence, yet it is un-prepared. Same thing happened with demonetisation. You go ahead and announce it, kar dete hai (let's do it) and then the whole thing gets unstuck then you say it is for digitisation then you say, no, no it is cashless, it is less cash and the whole world is laughing at us that how a government takes decisions without thinking through the process.

That is in the past now. I know that you had issues with the GST rollout on the July 1, but that’s history now. I am asking you about the way forward. The government believes that with the E-way bill coming into effect things will improve on the tax front. A lot of the technical glitches have also been dealt with. We are now moving towards single page return filing which hopefully should come into effect six-seven months down the line. Do you believe the revenue picture will improve significantly on the back of all of these developments and moves?

I am deeply concerned about it. Yes e-Way bill, West Bengal is the first one which digitised it three years ago. So we know that e-way bill can capture a bit of a revenue. As far as the form is concerned, again, I had very serious objections to one element in the form that you are doing away with something and introducing notices, this will create all kinds of problem. I don’t think it is a perfect form. It may be not possible to do a perfect form without pilots. So, what will happen tomorrow is a very serious matter – the world’s largest fiscal form. If you are going to do it on a back of the envelope method, this is what happens.

So if it is not – if revenue doesn’t pick up, the compensation is guaranteed in the constitution, right? Only Rs 55,000 crore was allocated for total compensation to states when we began. Now we don’t know where that is going to go and if it is larger than Rs 55,000 crore or even larger than whatever, where will the money come from? You cannot take it out of the government’s own pool, that is against the constitutional process and where is it going to be.

So, I am deeply concerned on this decline and not picking up revenues. Small and medium enterprises are not able to cope with the uplinking, even those who have opted for composition schemes, associations have come to me saying, we are not able to uplink. So whole host of people are not able to uplink.

The government has said for instance, that the composition scheme has been misused and it is seeing significant leakage. So it is fair then to only blame things like tech glitches for the fact that we haven’t seen a significant improvement in the revenue picture so far?

I don’t agree with the evasion on composition scheme without data, without studies. Why? Composition scheme involves 1% per industry. Those below Rs 1 crore turnover will pay 1% tax, services, 1%, restaurants 5%. These are very small quantity. Therefore, from Rs 20 lakhs – up to Rs 20 lakhs is GST free – up to Rs 1 crore. So this gap between Rs 20 lakh and Rs 1 crore is those who are going to enter the composition scheme.

Why will they tax evade if it is only 1%. The best way to tax people is make it a logical tax, a rational tax, a small amount of tax, which they don’t find cost benefit-wise evasion prone.

If I have to pay 1% and as against that if I don’t pay, I will get chased by the state as well as the Centre, I would naturally incline to pay.

So I want to see some hard research on evasion. Where is that data? So this is again a methodology of policy that has no basis, no research, just say, there has been evasion here and evasion there. I want to see it on the piece of paper.

I don’t think it is very understandable that one percent of tax people will try to evade at the cost of being chased by inspectors.

Let me talk to you about what is happening politically now, your Chief Minister Mamata Banerjee is leading the charge when it comes to putting together a federal formation but each of these states have very different demand, different pulls and pressures, so who is going to be the glue of this federal formation?

I think what should be clear is that there is a great discontent in the country. That is where these thinking of bringing together a federal alliance has emerged with Mamata Banerjee and many other leaders speaking on the subject. Of course, she has spoken about it among the earliest.

Now it is a fact that your GDP growth in current prices, you compare with the past and now 13% in 2013-2014 come down to 9.82%. Same thing happens in per capita GDP in current prices, 11.52% in 2013-2014 come down to 8.40%. If you take the constant prices, figures are very similar. Aside from that, I think there is a massive messaging issue. There is a messaging, why people are coming together in the federal front, why are people rallying because there is a messaging from the top, which results in attack on all kinds of people.

Have you ever seen what you saw on television of some anti-social in the name of Hindutva beating up the SC/ST boys who are carrying something and so pathetic to watch.

Then somebody gets killed in UP for carrying so called beef, a minority person gets killed in train for some other matter. All over the country, there is a rise of people who feel disenfranchised.

One must understand the simple thing about gods and goddesses, West Bengal never celebrated in a mass manner Ram Navami. Why? Because the subaltern people of India have 3.5 million gods and goddesses. So we have a goddess in West Bengal prayed to by common people, there is a Banbibi in Sundarban, the royal Bengal tiger, Banbibi which worshipped by Muslims and Hindus together. In my constituency, the Durga puja president in 10 pandals is a Muslim gentleman and Eid milap has Hindus in it. This was the state of play.

That whole stability of India of diversity of 3.5 gods now being centralised into one. No Ram Navami in Bengal. Mr Sarkar who used to be the secretary to the government, he has written a beautiful piece on the subaltern gods and goddesses and how the centralisation, who knows? It maybe Chitpawan Brahmin influence from 1930s in the RSS where never a sanghchalak has been from any other community. So maybe there is a perspective of philosophy there which is slowly creeping in to the psyche of the people and going – once it goes down, you have all kinds of people who catch that messaging. Don’t forget, that in Virginia, the white supremacist came out on the road over some statue for the first time in the history of modern United States and people blamed that on a messaging from the top.

So we have to look at this sociology of messaging and who has done a study on this. I would love to see some studies on the 3.5 million gods trying to integrate into one god or two gods or five gods or brahminical gods.

So I would say this needs a deeper analysis of why a federal front is emerging because of the discontent and the continuous process of disillusionment and undermining of the subaltern and the common.

After all, suicide – you saw in Maharashtra what happened with farmer. It is happening everywhere. So I think a broader answer to your question is this is an evolutionary process out of people feeling that we could have done better, our growth rates could have remained stable but demonetisation and now premature launching of GST.

We could have done much better in the vision of India of great diversity within which we have a solid unity. So there is political economy, sociological process, economics coming together through which this rising federal front idea or combination of fronts against the current dispensation is emerging. So there is basis to it.

We will have to see if this federal front idea is in fact real or will it be ephemeral as it has been in the past. But let me now talk to you about what we see happening on the campaign trail – the discourse had moved away from the vikas and the economy, I was having a conversation with Arun Shourie and he said the forthcoming election is not going to be about the economy, so don’t bother. But as an economist I ask you this, as a finance minister West Bengal I ask you this, what are the vulnerabilities of the government on the economic front that you hope to exploit as part of this move towards the federal formation?

I think it is very clear that from the economic process for example the labour intensive sectors which are very export oriented are suffering and that is where the jobs are. Give you an example, from Kanpur, the minority community, leather people came to us and said we want to come to Bengal, we are uncomfortable there. Thousand crore investment and 6,000 jobs. Immediately from Chennai we got a call, mega leather centre, they also want to come. Tanneries, upstream leather.

What I see is that there is a discontent of a massive nature with multiple instrumentalities, whether it is SC/ST, the downtrodden. For example, the informal sector was destroyed by the demonetisation, so there is an upsurge there. So from the economic standpoint, you are looking at slow growth on one hand, which is at macro level and at micro level, plethora of discontents which are political economic, which are social, getting mixed with the economy and therefore we see this as a composite process of political economy, which is the discontent of the people, the disillusionment of the people and looking for an alternative that will answer their question of livelihood of jobs, of growth and development.

Largest social programme in the world perhaps done in Bengal, called Kanyashree where 44 lakh girls have registered through e-process and they are today getting Rs 25,000 when they are 18 years, not having married and in the educational stream. This is at the state level, but look at the centre, beti bachao, beti padhao, first budget, Rs 100 crore. My budget for Kanyashree is Rs 1,500 crore a year. These are the disconnects in reality, in hard data terms. This is what people are going to absorb into a political economy outburst that we will not take this anymore, we will not be beaten anymore, we will not be undermined anymore, we want an alternative. We want to see something happen in the future.

That will be good for us, good for all. That is my perception that it is not one thing, combination of things that are bringing the process together. That is how history is made and Mamata Banerjee is, of course, taking a lead, so will others and she is very accommodative, she repeatedly said, “I am not interested in the chair, I want to see these forces that people are disillusioned with be placed with a better alternative for the nation,” and I am with her on that.

You said Mamata Banerjee is not interested in the chair, so who do you see leading this federal front?

I am only quoting what she said in public which I believe she speaks straight. She said, “I am interested in giving the disempowered empowerment.” What instrumentalities, what methodologies, what kind of front, she is saying, “I am not interested in the chair, I am interested in the bigger sense,” which is what I have laid down to you. This comes from the fact that she came up from the grass root, she understands this and the discontent hurts her everyday just as it does to other leaders.

Therefore, I would say this is a fascinating time in history and we will see in 2019 an alternative to India which will bring back integration of India within our diversity, our unity as well as an economic growth back to where it was before demonetisation happened. Don’t forget, before demonetisation growth was reasonable but these half-baked publicity based processes have brought us to this state. We hope that that can be changed in the future.

What about the entrepreneurs who have gone away from India? I believe that some study says 23,000 entrepreneurs have left India while we are asking for foreign direct investment, maybe entrepreneurs or high networth individuals and we are asking the same people from foreign countries to come here. These are contradictions, somebody has to address them.
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