On the first death anniversary of Arun Jaitley, former finance minister, Nirmala Sitharaman, incumbent finance minister yesterday wrote a tribute article titled ‘The Builder of Common Ground’ for the Indian Express.
As the title suggests, the article looks at the oft-spoken attribute of Late Arun Jaitley, which could be attributed to his friendships cutting across the political lines. In the article, Nirmala Sitharaman particularly writes about Jaitley’s contribution to GST regime unveiled in 2017 and was discussed at least for decade before that but couldn’t be enacted due to Congress’s inability to get all the stakeholders (mainly state governments) on board.
One particular sentence in this article caught my attention while reading, and I quote “Compensation cess is levied only on luxury or sin goods – tobacco products, coal, aerated water and automobiles.”
For the uninitiated, compensation cess is a tax charged over and above, highest GST rate (28%), on certain items (referred above) to compensate the states for any revenue shortfall post GST subsumed all the state tax, upto 2022.
This particular line or say statute in law proves that how the tax regime and overall governance still firmly remains in the hands of bureaucrats, and how political powers are failing to assert their will, at least in few areas.
While one can agree on levy of cess on tobacco products, to discourage and reduce their consumption, by making them more costly. Even it can be supported for aerated drinks even though Indian Beverage Association thinks differently, and they have their own reasons for that; they have written a letter to the finance minister and GST Council ahead of the GST meeting scheduled for 27th August. But Compensation Cess levied coal and automobiles is something which I can’t even fathom. To tag coal and automobiles as luxury or sin items is just ridiculous. Why do I say so? Contribution of thermal power plants, which use coal as their primary fuel to produce electricity is around 62% in India’s total energy requirement, means more than half, or in simple words every 62 homes out of 100 is still get electricity from thermal sources. If you depend so much on coal for your energy needs, there is no way you can tag it as luxury or sin good. No country in the world fully runs on clean (renewable) energy because currently, there is no technology to support it. Therefore, to classify coal as a luxury item is absurd and bereft of any logic.
Similarly, with automobiles. Cess is levied on the cars. Though it is less on small cars and more on SUVs, which are called luxury cars. Again, in absence of efficient public transport, in most Indian cities, to make cars a luxury item, doesn’t hold any water. You can still levy cess on big cars, as they are costly, and are often purchased as luxury items but to levy cess on small cars terming them as luxury good is absurd. Bureaucrats might say that making them cheap will only increase traffic on the road but in any case, is it less today? Few cars would be definitely added to the roads, no doubt, but I don’t think it will have an overall effect on Indian roads. They’ll continue to remain as choked as they are today, in future in absence of credible public transport alternatives.
Many people would like to travel by public transport, and in a city like Mumbai, people do because it takes you faster to your destination than your own vehicles, yet Mumbai roads are chocked. But where is the option in other cities. Mumbai locals just take you faster, they aren’t comfortable by any angle. A successful public transport has to be both comfortable as well as faster for people to adopt it and make it a success. In absence of it, people will continue to buy personal cars. In such a situation treating cars as luxury is uncalled for. Hope finance minister will address these anomalies in time to come.