Taxing Texts

After a stressful and rigorous debate within and outside the state assembly, J&K finally joined the GST regime. With constitutional debate over, the real tensions will now rise once the text takes over the ground and dictates a new trade transparency, reports Masood Hussain

J&K Finance secretary Navin Kumar Choudhary with the heads of state’s Commercial Taxes Commissioner, Excise Commissioner and other top officers of finance department who literally were on GST job for two months. KL Image

Whether or not Syama Prasad Mookerji, the BJP ideologue who died in the custody of Kashmir on June 23, 1953, had visualised GST in his ‘eak vidhan, eak pradhan, eak nishaan’ dream, as Arun Jaitely, India’s finance minister has said, but by implication, it is correct. J&K is part of the common market that GST has integrated since July 1, 2017.

It is also a fact that J&K has joined, a week later, to a new taxing system that lacks an exit clause. And this too is a reality that altering any rate band to any of its products, J&K government will have to create a consensus in the GST Council that holds the authority.

With J&K’s financial integration with the mainland India, a process that had started within seven years of accession in 1947, touching a new high, the fact is that no workable exit routes were around. Mainland India is the sole market consuming J&K’s 99 percent produce and supplying 100 percent requirements. As this huge market elevating to a new tax system, J&K had the option of staying isolated at its own costs. Unlike rest of the tax extensions since 1954, when the President issued the sweeping Constitutional Application order, GST was voluntary, and a result of market upgrade.

State government is seeking credit for making the forty-seventh presidential order for J&K an event that was discussed massively, at political level, in media and eventually in the state assembly. There is no such precedence available in J&K’s post-accession history that would suggest that recommendation for a presidential order had gone to Rashtrapati Bhawan after such a fierce debate, an order the contents of which were strictly as per the promises made on the floor of the House.

“This marks the beginning of a new process in which nothing can be done in hush-hush manner,” Finance Minister Dr Haseeb Drabu said. “It is a fact there was no political consensus. Nobody opposed GST per se. But there were apprehensions on modalities and safeguards were sought. We made commitments and kept the word.”

In the public debate, the issues that cropped up were sensitive and crucial to the leftover autonomy that J&K still claims it retains. However, what was interesting was the entire narrative critical to GST skipped the fact that Delhi has been collecting various taxes in the state since 1954 and the last attempt to get closer to a unified market was when Vale Added Tax (VAT) was implemented by the state.

The issues were: Will the GST regime become a parallel window to Article 370 to extend economic initiatives to J&K? Is the bridging Article 370 becoming redundant? Section 5 of the state constitution is the main power house for the state to legislate on issues it has rights over. It includes rights over laws related to taxing. Will the GST dis-empower this section? Since GST is managed by a Council, comprising all the finance ministers of the states and the India, and implemented by a robot (read GSTN), what will happen to the concerns of J&K?

The President took the natural route of extending the constitutional amendment, Article 370.

The order clearly states that the “powers of the state of Jammu & Kashmir as per section 5 of the Constitution of Jammu & Kashmir, shall remain intact”. It further clarifies: “The Legislature of State of Jammu & Kashmir shall have exclusive powers to make laws in respect of imposition of any taxes as enabled by section 5 of the Constitution of Jammu &Kashmir.” The order protects state’s “legislative competence” as guaranteed by the section 5 of the state constitution.

The order protects the state from the otherwise sweeping powers of the GST Council. “…for the purpose of any decision impinging on the constitutional provisions relating to the state of Jammu & Kashmir, the concurrence of the representative of the state of Jammu & Kashmir  in the Goods & Services Tax Council shall be mandatory and the procedure provided under article 370 shall be followed,” the Order reads.

“Where an amount collected as tax levied under clause (I) has been used for the payment of the tax levied by a state under article 246 A, such amount shall not form part of the consolidated fund of India,” the Order reads.

Contents of the “speaking order”, as termed by Dr Drabu, who negotiated it at political level with his team working with the central bureaucracy for nearly three months, will be the subject matter of various interpretations by the legal and constitutional experts. This order will trigger a new movement of revisiting the earlier orders by the academics.

But right now, it is the consequence of the GST that matters the most. Drabu was very objective in admitting the fact that now neither state nor the central government would require a huge budget because everything is transparent and known. “I will do India’s first open budget, put things on line, seek suggestions from people and take the anticipated expenditure statement to the assembly,” Drabu told assembly. “Jaitely may have a few pages to share because the centre will still collect a few direct taxes outside the GST regime.”

Already Drabu has announced doing away with the archaic treasury department. It will find a new role, later this year. The next is the Commercial Taxes and Excise Department. These twin departments will exhibit less appetite for fresh manpower as more staff there will face least-work challenges. GST’s self assessment system has done away with the audit up to 95 percent. Drabu says these departments will become tax advisory institutions in coming days. They will have to advise people about doing away with the cash transaction (at 20 percent to GDP and highest in India), adopting the new system and, there is a strong possibility of getting some additional role.

There are various other administrative issues that are still not decided. The serious apprehension with the trade is that they may have Delhi’s taxman knocking at their doors daily. Besides, they have a serious issue about the dispute resolution mechanism. While Drabu has committed that the state will have its own appellant authority, to be announced by the central government, he has not been quite assertive on two other possibilities: can Delhi outsource part of its mandate to the state? Though Delhi has its taxman already in the state, CENVAT and Central Excise, if Drabu gets some deal, there is possibility of people in the state’s twin taxing systems, getting back to business, with slightly more working hours. Delhi can outsource part of its mandate to the state, now an equal share holder in entire collections.

Issues about handicrafts and certain export oriented fruits like Walnut are expected to be tackled by the GST Council. But what state will have to do is to create an elaborate model for managing industry, especially the local part of it. The “disruptive policy intervention” of GST is pushing the industry to a new competition with most of the concessions being withdrawn because GST does not recognise the support structure. While the commitment is that these concessions will be paid, the government may have to fast-forward its thought policy to create a viable model.

But the controversy will remain in the headlines. If Congress rakes up the issue of BJP conceding to the strengthening of the Article 370 and agreeing to a sort of special GST system in J&K, it is found to push BJP to an uneven crisis in most of the cow belt where this “article of faith” is sort of Nehruian treason. So in coming days all the Gav Rakhshaks will be talking about the Syama Prasad Mukherji’s “dream” to address their constituency.

J&K’s six times Finance Minister Abdul Rahim Rather addressing a presser on GST on July 2, 2017 in Srinagar. KL Image: Mehraj Bhat

This will add to the public perception in Kashmir and help the opposition talk in high decibel voice that the protection of the Article 370 and Section 5 is a “subterfuge”. The fact is that right-wingers took the cake and had it.

That is all politics. The fact is that North Pole, South Pole alliance is trying to have its bit of benefit in all the deals it will engage in. In the GST case, BJP is right when it says J&K is financially integrated with the larger Indian market and PDP is correct in claiming it safeguarded state’s constitutional exclusivity. The larger reality is that J&K had no viable option in getting into a shell and surviving isolated from the markets it was already extension of.

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