GST doesn’t compromise J&K’s fiscal autonomy, competence of its legislature or cabinet

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Dr Haseeb A Drabu, J&K Finance Minister on GST, autonomy and business

Kashmir Life (KL): Once upon a time Dr Drabu was against GST and now the FM Drabu is so supportive of it?

Dr Haseeb Drabu (HD): When I wrote those columns in Greater Kashmir opposing the extension of GST implementation, GST hadn’t taken shape. Even the GST Council had not been formed. There is a significant and substantial difference between how GST is evolved over time. GST in India has evolved in last 12 years, a lot of change had happened. I can say this with a lot of confidence that India’s first federal institution is a GST council. In the Council many states including J&K have been able to influence the architecture and the design of GST.

Having said that when I looked at how it is evolving, the way it has been formed today, I believe it doesn’t compromise either the fiscal autonomy of J&K or the competence of the legislature and the cabinet which I had earlier spoken about. Now it is a two tiered GST which has a rate structure which was decided in GST. Initially in conceptual stage, one rate GST was being talked about. So when I today support it, I support it because it has enough flexibility. For instance the biggest flexibility is the first time constitution amendment to the Indian constitution specifically mentions that this is not applicable to J&K, that itself shows the respect shown by the Parliament of India and Government of India for the special position of J&K.

KL: How different will be your piece of legislature from what is being implemented in rest of India?

 HD: I think the first most important thing is that this is the first time that a constitutional amendment is being discussed by the assembly of J&K. This in itself is an empowerment of J&K’s legislative assembly. Never before has it happened.

Today opposition parties are talking of hush hush extensions. In their time they have never taken any constitution amendment which had far more serious implications on the autonomy and the residuary power of the states to assembly. One deputy secretary or chief secretary would write to Government of India and Delhi would issue a notification. For the first time we have taken it to the assembly. The assembly will discuss it and then resolve certain things which will be notified by the president. Earlier it was a unilateral extension without taking the legislative assembly into confidence. I think that is biggest empowerment. So far from compromising our autonomy, by doing this we have enhanced our autonomy.

KL: Is it going to be slightly different by way of procedures or processes without altering rate bands?

HD: To the extent that we draw our powers to tax from Section 5 of J&K Constitution and all other states draw from Article 247-246 of Constitution of India, there is bound to be a difference and that difference will play out, both in legislative part as well as in administrative part.

As regards rate bands, rates were fixed in the VAT regime by the previous government and the J&K was the only state that never even violated those guidelines even as Maharashtra, Karnataka, Gujarat violated. J&K government was so meek under the former finance minister that they did not change it even once. It was only last year I violated the guidelines and raised the rate 14.6 percent. So when if somebody is saying that rates are being fixed now, they are misleading. Rates were fixed in VAT regime. The power to decide rates was given up in VAT regime, not in the GST regime. So what are we talking off here.

KL: The general impression is that centre will have a larger say in both implementing and collection of the GST from now on.

HD: We are a specialist category state, there is no denying that part but in terms of implementation, let me tell you the only difference will be that earlier the centre was not visible now it may become visible for the all states. As regarding J&K, please wait and watch. I am not at the liberty to disclose what we bring to the assembly. We will discuss it. We will take a consensus view. Post that we will see how administration will work on it. Who will collect, who will implement, who will be the administrative control, let us see. If there are disputes, who will be the appellant authority. These are the key concerns. Let us wait. It is not far away. On June 17 we will place the bill before the house, you can all have a look at it.

KL: How do you see this GST changing your income?

HD: Fundamentally this is one question to be answered and it is a negative question. If we don’t implement GST, how will we conduct business? The issues are not about government. In J&K everything is seen from a government perspective. I have written extensively on how Article 370 was compromised. There is nothing left of Art 370, I have said this many times and how it has been compromised by National Conference.

Suppose we don’t do a GST, how will business survive? You have an adverse terms of trade. You import more than you export. You are a consuming state, who will supply to you. Have you ever thought of the consumer? You always talk of people of J&K. What are you doing for them, giving them expensive goods? Infact you will have difficulty in importing goods because if you don’t do that the input tax rate will not be given to the guy who supplies to you. Consequently you will have nobody doing business. You will make Kashmir economy an isolated economy. Trade will not happen. If trade does not happen what will happen to the all businesses here? So that is you need to look at from business perspective also.

As far government, we are a consuming state. We make no money. Plus for five years, I have an insurance, 15% growth is insured by government of India. If I collect less than 15% they will give me the remaining part of it. So next five years, it is a win-win situation for all states not just J&K. But in J&K we have also managed certain things, exemptions will continue. I don’t think financially we are facing any problem. In my own sense, we will get a lot of money in any case. Tax sharing arrangements are there already extended to J&K since 1954. Those have been continued. Nothing new has been added.

If you look at CGST, excise was there, if you look at IGST, CST was there, both were extended in 1954 and 1958 with no reference to the assembly of J&K and the order issued by President of India: constitutional amendment application order to J&K 1954 and 1958. Nothing new has been extended. Now the big question that is raised again in terms is of Service Tax. We don’t have explicitly mentioned anywhere in our constitution power to tax services but we have the power, yes, but we have been levying service tax not as service tax but deemed good tax. Only in 2007 we started. I was in government as economic advisor when I advised the government that time let us not extend the service tax because it is the central service tax. Today centre has given us powers we are sharing tax sovereignty with center now.  Prior to 2007, it was not sharing of sovereignty of tax. It was extension of tax in center so there is difference.

You may like to make politics out of it but when you look at substantive debates, there is nothing much to show case. They set up a cabinet sub-committee which never submitted a report. What kind of dishonesty is this that today you will oppose it. I have welcomed All Party Meet, we will discuss it there also.

KL: But a section of trade is also quite restive for some time?

HD: The point is that trade is restive always in J&K for a variety of reasons. They have not been doing business. The situation is that people have not been able to do their business well. Trade in any part of county will be apprehensive of a regime change, it is major change. Who is not restive? You think I am not restive. You think Arun Jaitley is not restive. Off course they will be restive because it is a historic change. This is to my mind the biggest tax regime change that has happened in post-independence India. There are bound to be IT glitches, there are bound to be confusions but it will settle down. It is nobody’s contention that you will sleep in VAT regime one day and wake up in GST regime another day. There will be transitional problems. There are transitional provisions also. What happens to my stock holding? I have inventory, what happens to them. How will MRP work? All kinds of things will be worked out. I am not really worried about it but it is legitimate on part of it because in J&K the trade is a very conscious kind of trade. Apart from business, they are also concerned about special status of state which I have assured that it has nothing to do with Art 370, it won’t be compromised, nothing new is being extended. In my budget meetings, I had also discussed with them that they should tell us what they think we should do, they didn’t come forward for that. But again we are meeting in next couple of days. We are having an All Party Meeting also. Let us see how it works.

KL: Assembly will give legal infrastructure to GST. What will happen to existing taxing infrastructure that we have?

HD: That will continue. One thing that J&K is doing which no other state is doing is that we are converting our taxation department into advisory department. Because nobody seems to realise that GST is a self-assessment model. You do self-assessment, upload it. Now there are no such complications, inspector raaj is not there. When the data system works on its own, it will compare, it will match invoices and if they find anomaly somewhere it will highlight it.

Out of all the cases highlighted, five percent would be put up for audit. So if you have 100 cases or transactions, five percent would be audited in a year. So I have thought that I will change the entire Commercial Taxes Department into a tax advisory department because their role is no longer of monitoring. This is more about compliance now and how to do this. So I think lot of it have not yet been clear to the people. It is a self-assessment model where only five percent is out for audit, out of that 5 percent, normal sharing is 50-50 with central government. In our case it may be different. So that also tells you a whole story how we are handling GST.

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