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Bringing electricity under GST is likely to take 5-10 years: Sushil Kumar Modi

New Delhi, May 30, 2023

The proposal to include electricity under goods and services tax (GST) is likely to take another five-10 years as states are not yet convinced, and it is still being considered by the GST Council, Sushil Kumar Modi, a member of the Rajya Sabha and former deputy chief minister of Bihar, said in an interview on sidelines of Mint India Public Policy Summit on 26 May. Besides, bringing petroleum products under GST will not be viable, Modi added.

Edited excerpts:

GST seems to have worked out well. Every month there is a new record on GST collection. What change is needed, going forward?
The six years of GST has been a successful journey. Some leaders of Congress said that GST was ‘Gabbar Singh’ tax. Some even said when they come to power, they will scrap GST. I do not think anybody can dare to scrap GST. The design and architecture are very different from other countries. We do not require drastic changes in architecture. Here and there minor tweaks are required, primarily regarding tax slabs. From four slabs we may bring it down to two or three slabs.

A more important thing is matching invoices. There is still no mechanism to match the invoices. Not much can be done regarding this. However, some items could be added to the exempted category, and no state can go outside the GST. If a state goes outside the ambit of GST, it will be in a disadvantageous position. If a state opts out, others will not be doing business with it. In theory, states are autonomous but in practice, no state will be able to go outside the GST.

What about bringing electricity, petrol and diesel in GST? What is your take?
It will not be possible to bring petroleum products under the GST. If you do so, states will incur losses of not less than ₹3 trillion. As of today, the tax on petroleum products is over 50-60%, and in GST, the maximum tax slab is 28%. So, there is a gap. What will happen to revenues? Who is going to forgo revenues? In the near future, I do not see petroleum products coming under GST. When GST rules were being drafted and the bill was passed by the parliament, there was a provision for petroleum products: It said the decision will be taken by the GST Council and no constitutional amendment will be necessary. In the earlier bill which was presented and brought by Pranab Mukherjee or the UPA government, it was not part of GST. In that case, you had to amend the constitution. Now, we don’t need it.

Bringing petroleum products under GST will not make much difference for the common man, but benefit petroleum companies that invest in exploration and refining given that their investments will become viable, and they can take advantage of that. In the case of electricity, it is still pending with GST Council, but I think it will take time as states are not convinced. Discussions on electricity duty have not started yet. I think in the next five-10 years, electricity duty can be brought under GST.

Earlier GST Council meetings were about consensus. Does the tradition continue even today?
Political parties put dispiriting remarks outside the GST council, but within it, nobody has raised such an issue. For instance, no state opposed the increase in rates for curd, buttermilk and other products.

It was an anonymous decision. States that issued statements against the decision were the first ones to implement it.

They behave differently inside the GST council and differently outside the council. They were asked to vote. In the last six years, there has been one single incident in which voting took place. That was about a lottery in Kerala. Whether it is a BJP-ruled state or Congress-ruled state, they are concerned about their revenue implications. So, scrapping ‘Gabbar Singh’ tax issue was not raised in the council.

How was the experience of rolling out GST?
The preliminary decision regarding GST started taking place in 2005 or 2006, but the implementation took a long time. It was the most difficult proposition, and I must thank Arun Jaitley. If Arun Jaitley was not there, it would have been impossible to bring all states in one platform. All the rules are similar, and even when the constitution amendment was introduced in the parliament, there was no note of dissent. Each state and every political party supported the bill. It was only the convincing power of Arun Jaitley, and he was very flexible. For one and half years, we had discussed GST in the empowered committee of state finance ministers. The states were only concerned about what would happen to their revenue collection because there is a purchase tax in Punjab and Haryana, inti tax in Bihar, a lottery in Kerala and West Bengal. Once the revenue was protected by assuring 14% growth over the five years.

No state had 14% growth prior to GST. In the pre-GST regime, the average growth was 8-9%. It was not only states but the Centre surrendering its sovereignty. The excise duty is now merged with the GST. Therefore, the government India as well as states to also fargo its decision-making power regarding excise duty, which is a grand bargain.

Political scenario in Bihar has shot up given that general elections are around the corner. How do you think this will unfold provided that Bihar chief minister is meeting other state CMs for alliance. What is your take on this?
In the last nine months, there were three by-elections and there were maha-gatbandhan between seven parties in Bihar. They lost two by-elections despite seven parties coming together. When it comes to Lok Sabha elections, people will vote for Narendra Modi. There is no other alternative to Narendra Modi. The voters of JDU or RJU may be voting for their respective parties in the state assembly elections, but when it comes to Lok Sabha elections, a large chunk of voters will cast their votes to Narendra Modi.

In the current political climate in the country, is good economics still good politics?
Yes, to a large extent, but you cannot generalise. In Bihar, we never promised free power and giving farm loans. Freebies do not work always. In Karnataka, I don’t think Congress came into power only because of freebies. There must be some other factors. There must be some anti-incumbency, but still the 5% vote, which is for JDS and the same share was added to the Congress party. Despite all the odds, BJP maintained its 36% share.

It should be fiscally prudent, and we should not always go for cheap populist slogans.


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