In his hurry to get the Goods and Services Tax (GST) implemented as soon as possible, Finance Minister Arun Jaitley is running the risk of letting a lot of accumulated experience and know-how go to waste.
This holds true for the policy making acumen of the Central Board of Excise and Customs, as well as the experience in the intricacies of service tax collection of the central tax officials.
The root of the issue, which prompted the Indian Revenue Service (IRS) Association to write to Prime Minister Narendra Modi, is the cross-empowerment agreement arrived at by the GST Council. Following a deadlock on the issue for three successive meetings, the Council finally agreed to a severely skewed arrangement.
Scoring high on corruption
The States would be given the right to assess 90 per cent of businesses with a turnover of less than ₹1.5 crore a year, with the remaining 10 per cent going to the Centre. The Centre and States will split the assessees earning more than ₹1.5 crore a year.
In one fell swoop, Jaitley has opened the door to financial, human resource, corruption and efficiency issues. While the IRS Association letter to Modi says that such a split between the Centre and the States would lead to a ₹1.1 lakh crore loss to the central exchequer, this estimate was not accompanied with any reasoning or break-up between excise, customs and service tax collections.
Private sector tax experts, while all agreeing that there will indeed be a loss to the Centre, peg the actual amount at anything between ₹50,000 crore and ₹1 lakh crore.
The hope is that the States’ revenue would make up for this central loss, but even that is belied by the experience so far of how state revenue officials conduct their business. One private tax expert said that on a corruption index of 10, if central tax officials score 4, then state tax officials score as high as 8-9! Several experts have estimated the States’ revenue loss due to the corruption of their tax officials at as high as 60 per cent.
Historically, the central tax officials and the state tax officials haven’t gotten on well together, with most of the problem arising out of the central officials’ belief that, since they were selected through the UPSC process, they are a superior breed of tax officials. But, with the GST break-up between the Centre and States as it is, both levels of officials are going to have to cooperate with each other, something that hasn’t happened in over 60 years.
Loss of expertise
Then there is the issue of wastage of expertise. The central officials are very good at taxing services, as they have been doing it since 1994. They know the intricacies of what constitutes a service, how services behave as opposed to traders, etc.
It makes sense to utilise this expertise rather than simply shift most of the burden of service tax collection to state officials who have not had to collect service tax so far. Once GST kicks in, they will be thrown into the deep end and will inevitably flounder for quite a while.
Similarly, the Central Board of Excise and Customs (CBEC) has been an extremely competent policy-maker when it comes to indirect tax, but under GST it stands to be rendered toothless since all decisions will now be taken by the GST Council. This, too, is a colossal waste of accumulated experience and expertise.
Finally, there is the not-insignificant point of oversight and audit. While the Comptroller and Auditor General of India can audit the performance of the CBEC, this does not hold true for state revenue services. This is a serious problem, especially if such a large share of tax collection is to be given over to these officials.
It’s a good thing that the IRS Association wrote that letter to Modi since, even if the GST arrangement cannot be altered, these issues, nevertheless, warrant discussion among the top leadership of the Finance Ministry. Small tweaks can go a long way in mitigating great pain.