GST Has Many 'Defects', Implications Will Be Known In Due Course: P Chidambaram

The first implication of the Goods and Services Tax (GST) implementation will be "some inflation" and nobody can deny that, P Chidambaram said.

GST Has Many 'Defects', Implications Will Be Known In Due Course: P Chidambaram

P Chidambaram said it remains to be seen what steps government will take to tackle price rise after GST.

Karaikudi, Tamil Nadu:  Senior Congress leader P Chidambaram on Saturday hit out at the Centre for rolling out the GST in its present form, saying it has many "defects" and its implications will be known only in "due course."

The first implication of the Goods and Services Tax (GST) implementation will be "some inflation" and nobody can deny that, he said.

The former Union Finance Minister said it remains to be seen what steps the government will take to tackle price rise.

Claiming that Micro Small and Medium Enterprises (MSMEs) will be affected by the GST, he said, "They are not ready... every state has several MSMEs and they demanded time but this government is adamantly refusing... they could have been given that."

Seeking to pick holes in the reform touted as the biggest since independence, he said, "This is not true GST... not one designed by experts... not our (Congress) ideal (lakshya) GST. It has many defects and its implications will be known only in due course," Mr Chidambaram told reporters in Tamil Nadu.

He said, "What has come into force today is really not GST.. GST is one tax, and only one tax."

The present arrangement meant that both old and new tax systems will continue to be in place together, he said.

"It cannot be accepted that old has been replaced by new. Old and new tax regimes will be in place together," he said.

Stating that the government has fixed a standard rate of 18 per cent, he said when compared to GST-rate followed in other countries, it was "very high."

He also said the Chief Economic Adviser himself has given a report, saying the standard rate could be between 15 and 15.5 per cent.

"They should have stopped with three-rate structure of standard rate, standard minus and plus."

In contrast, he said there were, however, approximately seven-eight tier of rates like 0, 3, 5, 12, 18, 28 and 40 (per cent).

"Truly that is not GST, it is further far away," he remarked.

Another 'defect' was in respect of tax administration (supervision), he said and asked "who is going to administer the tax, the state or the central government?"

Citing an example, he said a business based here with a turnover of about Rs 2 crore does not know if it came under the purview of the Centre or state.

He said, "I had asked whether they will choose through drawing of lots, it is not known."

On filing returns, he said, monthly three returns have to be filed, which means 36 in a year, besides an annual return.

If a firm has operations in seven states, it has to file 37 returns in each of these states, he said.

Another 'defect', he pointed out was that the government could not decide whether the state or Centre will have jurisdiction over the kind of business.

Hitting out at the anti-profiteering clause in the GST, under which rates should be slashed if tax was lowered, Mr Chidambaram said, "This is the version of those who don't understand market economy."

"Tax (GST) may have come down but several things like rent, freight and salaries could have gone up."

"This (anti-profiteering) is a weapon in the hands of officials. I need not say what will happen if officials get a weapon."

Pointing out that areas like petroleum were out of GST purview, he said, "If you exclude petroleum and electricity, approximately 35-40 per cent of economy does not come into the purview of GST."

Many things have not been brought under the GST ambit, including petroleum, electricity and alcohol products, he said.

Meanwhile, DMK working president MK Stalin told reporters in Chennai that his party has been maintaining that traders should be given time to switch over to GST and talks must be held with them.

He said at least now, after the launch of the reform initiative, stakeholders should be given an opportunity.

Based on their feedback, appropriate steps should be taken by the government and "whatever needs to be done should be done and we will welcome it".

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