Senior Congress leader P Chidambaram on Wednesday termed the Centre’s bid to roll out GST by July 1 as “impractical and undesirable” and asked the government to push the date of its introduction to October 1.
“The goal of July 1 (for introduction of GST) is impractical as well as undesirable. Millions of micro, small and medium enterprises have to adjust to the new regime... In my view, the wise and correct date would be October 1,” he said.
The former Union finance minister said many businessmen may simply have no in-house talent or skill to comply with the provisions of the Goods and Service Tax (GST) law and hence called for delaying its introduction.
The senior Congress leader said the Goods and Services Tax Network (GSTN) has to prove itself in a trial run and “a very large number of returns have to be tried in a trial and that must be proved”.
Allow a trial run of the GST and give enough time to businesses, service providers as well as sellers of goods to adjust to the new tax regime so that when it is ultimately rolled out, it is reasonably smooth, Chidambaram said.
“They must implement GST with a benign hand, there must be forbearance. Thousands of people will make mistakes but if on every mistake, the tax official is unleashed on the unsuspecting tax-payer, there will be push back, there will be a backlash,” he said.
“I am not talking about criminal fraud. But, if the government shows forbearance to small mistakes and tax officials apply the law in the first year or so with a benign hand, then I think the short term can be short,” Chidambaram said.
On the likely impact of the GST, he said it will indeed bring greater efficiency in tax collection and more potential tax-payers into the net and will restrict the scope for tax evasion.
“It (GST) will bring more tax revenues and that will give a boost to the GDP. But on the other hand, in the immediate future, the GST will be inflationary. Whether it will be mildly inflationary or highly inflationary, I cannot say,” the Congress leader said, adding it will ultimately depend on the rates which the government announces for goods and services.
He felt that in medium to long term, GST will be extremely beneficial to the country, but in the short term “it might bring us less benefit than the government claims. But I think it will bring us some benefit”.
On what can be termed as “short-term”, Chidambaram said it depends on the fitment of tax rates and on how the GST is implemented.
He said if 70 per cent of goods and 70 per cent services are fitted into the 18 per cent model rate, then the short term will be “reasonably short” but if the government puts more goods in the 28 per cent rate or in the 40 per cent rate and add cesses on top of that, “then a short term could actually extend to a longer term”.
On the Congress’ reaction on the government’s growth figures post-demonetisation, Chidambaram said going by the figures put out by the Central Statistics Bureau, Gross Value Addition in quarter one was 6.89 per cent which declined to 6.69 per cent in quarter two and to 6.61 per cent in quarter three.
He said if value addition is calculated leaving out three sectors which were admittedly not affected by demonetisation, like government expenditure, the monsoon and utilities which accepted old notes, the GVA from the three quarters are 7.35 per cent, 6.47 per cent and 5.73 per cent, even on the government’s own admission.
The Gross Value Addition which is currently used for measuring growth has declined between quarter 1 and quarter 3. It can be nobody’s case that Q4 would be any better than Q3.
“Demonetisation took place in quarter three. Let us wait for the quarter four figures. You will find it is lower than 5.73 per cent,” Chidambaram said.
“So, in the light of these figures, to say that demonetisation has not affected growth, I am afraid, one must be quite challenged to make that statement,” Chidambaram said.