 Hello and welcome to NewsClick. Today we are here with Prof. Prabhat Patnaik to discuss the issue of goods and services tax GST. Hello sir. Sir, as you know from the next month onwards goods and service tax is going to be implemented all over India in all the states. Can you tell us a little about how GST differs from the existing tax regime? First, let me make it clear. I am not sure that it would be actually introduced on July 1st as they are claiming because there is a lot of opposition to it. There is a lot of opposition to it including in the state of Jammu and Kashmir where it is felt that is violative of Article 370 of the constitution. So, to what extent the government is able to introduce it is something which we are still not very clear about. In terms of the difference, you see earlier the constitution allocated taxes to the center and the states. And of course, the taxes which were allocated to the states were supposed to be those which actually yielded less revenue than the expenditure responsibilities of the states. And the opposite was true of the center because of which a finance commission used to be appointed once every 5 years in order to allocate resources from this center to the states. Among the taxes allocated to the states, the most prominent was sales tax. Sales tax generally yielded about 80% of the revenue of the state governments. Now, of course, over time there has been some movement away from sales tax through VAT, but on the other hand this VAT or value added tax itself is something whose ambit was not all pervasive. Now, I think the GST is basically meant as a substitute for that. From now on what you would have is a uniform tax across all states on particular categories of goods. In other words, on that category of goods, all states would be having a uniform taxation. There are some minor exceptions, let us not bother about them. That basically means that you do not have a uniform tax across commodities, but you have a uniform tax across states for specified groups of commodities. This is going to completely substitute whatever sales tax revenues the states used to get. And as a result, what you would have is that the states would have absolutely no power in deciding what tax rates to impose on what commodities. A right that was given to them under the constitution. So, as you said except may be three commodities that is petroleum, electricity and alcohol, rest of all the commodities the tax will be determined by the central government. So, how would it affect the autonomy of the states and the centre state relations? Now, you see what they are saying is that there would be a GST council that would decide on the tax rates. Now, the GST council would consist of all the state government representatives plus the central government representatives. So, suppose I happen to be in a particular state government and I want the tax rates to be changed. In that case, I would have to approach the GST council where I am only one of the members. As a result, my autonomy in fixing the tax rate that I believe is essential for raising greater revenues in the states is something that completely goes. Now, you see one of the basic things about the federal structure of our polity that the constitution kind of enshrined is that the states must have the freedom to experiment with different models of growth with I mean Kerala has had what Amartya Sen has called the Kerala model which means a substantial emphasis on expenditure on the social sector or the states do not have, Gujarat does not have. Some states actually give greater incentives to the capitalist in order to attract investment, other states do not do that. So, different states even within the broader parameter of national economic policy have got a leeway to experiment with their own specific ideas about development. And that is why you have a difference between governments with left wing orientation, governments with right wing orientation having very different trajectories of development very different development strategies. Now, once you have this then of course, the complete freedom of the states to pursue alternative strategies goes that is the first thing. And secondly, you actually have an enormous centralization of power because if you want any change in your rates you have to go to the GST council. And in the GST council centre obviously would have a substantial voice and consequently you would become completely dependent on the centre. The centre would say you accept our presidential nominee, otherwise we are not going to support you in the GST council. And things of that kind are going to happen, you know it would be an enormous centralization of power, it is violative of the federal structure of our constitution and I believe that it is actually against the basic structure of the constitution. You remember the time of the emergency, the Supreme Court had defined something called the basic structure of the constitution. You cannot have a constitutional amendment that actually goes against the basic structure of the constitution. And I believe GST goes against the basic structure of the constitution as far as the federal arrangement is concerned. Could there be some arguments in favour to it because if there is a uniform tax structure, the state governments probably will not need to compete with each other to attract investment for an investment etcetera. You see when first let me answer the second question, when it comes to competing against one another, I agree a race to the bottom is the worst thing. But that is perfectly well served by having a minimum rate that can be for all the states and leave the rates they wish to charge above this minimum to the state governments. In other words you can actually have a goods and services tax with a minimum rate and then the state governments can impose whatever rates they wish to above this minimum. In which case you are not violating their freedom to charge whatever rates they wish to charge and at the same time you are preventing this race to the bottom. But this is not being accepted on the grounds that a uniform tax rate would unify the national market and that this is good for development. Now, I just want to bring to your notice the fact that the most powerful capitalist country in the world is the United States which is the leader of world capitalism and the US not only does not have a uniform GST across the states, different states have different exemption limits, different states charge different taxes, it has a plethora of taxes. Now, who is going to tell me that the US does not have a uniform national market and if despite having supposedly a non-uniform national market is the most powerful capitalist country in the world, then what is there to say that a uniform national market is so necessary or important and so on. All kinds of ridiculous figures like is going to add 2 percent to our growth rate and so on are bandied about which are based on econometric frauds based on assumptions which make no sense whatsoever based on assumptions about investment behavior which really are untenable and on the basis of that everybody is made to accept a violation of the basic structure of the constitution. There having some protests in some quarters for example, in the prime minister's own state Gujarat traders have been striking against GST, but regardless of that most of the states even those rule by opposition parties are in support of GST. What do you think about? You know a lot of the states you see the debate till now has actually been how much revenue loss is a state going to have the center you know compensate them for how many years and things of that kind. In other words, it has been a completely empirical discussion. Now, most state governments are in power for a few years and they therefore, have an extremely short sighted view as long as they do not immediately suffer in terms of revenue loss and so on they are perfectly happy and the center has promised to them they are going to make good whatever revenue losses they may have for 5 years which basically means that until the tenure of this particular state government nothing damaging is going to happen, but I think state governments have to take a much longer term view because it is not a question of money, it is not a question of resources that you can get over the next few years. It is really a question of the rights of the states. Now, you know let me just tell you one thing suppose it so happens that the BJP rules in most of the states of the country and all state governments agree along with the center to have a constitutional amendment to declare this country a Hindu Rastra. Would that be acceptable? It would not be because it would be against the basic structure of the constitution. Therefore, even if all state governments in India agreed to the GST even that does not make the GST an acceptable proposition. The GST goes against the federal structure of the country and against the constitution why is government pushing it so much? You see it is a demand of the corporate elements in the country. There are all kinds of figures doing the rounds about how much they would gain and so on, but let me not get into that. But fundamentally from their point of view it is convenient if you have one uniform tax rate across the country, but you see why does America not have a uniform tax rate? It does not have a uniform tax rate despite being the country in which the corporates are the most powerful entities in the world. I mean whose corporates are the most powerful entities in the world because they value their federalism greatly. In America in the Senate for instance every state whether it is Delaware or whether it is California has only two senators. Now that is a symptom of the kind of value they placed on federalism. Now I think because of that they would never even contemplate Europe has a GST and other countries have, but they would not even contemplate having a GST that is uniform across state states. Now therefore I think corporate interests are being made to override the rights of the states and the state governments are being actually bought off by promises that your resource position is not going to worsen in the short run. I should just add another thing that you see is not only that GST is against the basic structure of the Constitution, I believe it is also introduced in a manner which is unconstitutional. Why do I say that? Because if you look at the 101st Constitutional Amendment that clearly provides which is the basis for introducing GST that parliament has passed that clearly provides for a change in the constitutional provision in which sales tax is removed. Now sales tax falls entirely under the state list, it is not in the concurrent list. Parliament has no business to pass a law about a matter which in the Constitution falls within the state list and consequently I think even the manner of its introduction is unconstitutional and I think the parliament has been duped into doing this and I think that itself is unacceptable.