Modi U-turn on GST

Narendra Modi in New Delhi on Thursday. (PTI)

New Delhi, Feb. 27: BJP leader Narendra Modi today indicated that he would support the goods and services tax (GST), after having stone-walled the UPA government’s efforts to bring in the tax for nearly a decade.

Modi, who had a series of interactions with traders, chartered accountants and business leaders during the day, said: “BJP is in full favour of GST. Infotech connectivity is a prerequisite for the implementation of GST.”

The tax — which will snuff out central excise taxes, additional customs duties, surcharges and state taxes such as VAT, entertainment and luxury taxes, lottery and gambling taxes — could well add 1-2 per cent to India’s growth rate, according to economists.

The Bharatiya Janata Party and the BJP-run states of Gujarat, Uttarakhand, Chhattisgarh and Madhya Pradesh have steadfastly thwarted two successive finance ministers’ (Pranab Mukherjee and P. Chidambaram) bid to bring in the nation-wide tax.

An attempt by Mukherjee some four years back to break the deadlock during a trip to Ahmedabad did not succeed as the chief minister, while not objecting to the measure, brought in procedural objections.

Later on, meetings which Chidambaram held with Opposition leaders ahead of the Parliament sessions met with similar objections.

A consensus is essential as the GST rule has to be passed by a two-thirds majority in both houses of Parliament. The original deadline for rolling out the tax on April 1, 2010 as well as several later deadlines have already been missed.

Finance ministry officials, who have worked overtime to try build a political consensus on the tax measure, said the GST Act as envisaged by the Centre provided for a institutionalised mechanism to distribute the states’ share of taxes.

Officials said Modi’s emphasis on the need for proper IT support for GST roll-out stems from North Block’s presentations to the state finance ministers’ conclaves on GST.

The presentations showed how a nation-wide IT infrastructure to record intra-state trade data could help the tax measure succeed and also help states claim their rightful share of the tax.

Analysts said all states would benefit from this simple value-added tax in the form of higher revenues, with the greatest gains going to those with large manufacturing bases.

“The biggest gainers will be states such as Gujarat, Tamil Nadu, Maharashtra, Karnataka and Bengal, who are big producer states… criticism of it will die out once the measure comes in,” said D.K. Joshi, chief economist with Crisil, adding, “We see GST as the single most important and fundamental tax reform taking place.”