India territory ratifies tax consitutional amendment amid protests
India territory ratifies tax consitutional amendment amid protests

The Puducherry (former Pondicherry) Legislative Assembly ratified [Indian Express report] the Goods and Services Tax (GST) constitutional amendment [text, PDF] passed [Diplomat report] by the Parliament of India [official website] earlier this month amid a walkout staged by the primary opposing party and ruling party of Tamil Nadu, the All India Anna Dravida Munnetra Kazhagam (AIADMK or ADMK). All members of the All India NR Congress (AINRC) [official website] continued their own boycott [Indian Express report] against the ratification of the amendment, which is seen as the biggest tax reform in the country in decades. Specifically, opposition assembly leader and member of Parliament from the ADMK, Anbalagan Arumugam expressed concerns that the GST will be injurious to the union territory of Puducherry and stated that the government should have given time for consideration of the resolution ratifying the amendment. But Puducherry Chief Minister Narayanasamy Velu assured his constituents and the voters that he has taken steps to protect the interests of Puducherry including winning assurances from India Finance Minister Arun Jaitely toward that end. The chief minister also stated that the Puducherry government will continue to enjoy its power to levy and enforce its own service tax and tax on liquor. According to Assembly Speaker Vaithilingam Venkatasubha, the resolution was passed “unanimously.”

Much like in the US, ratification of a constitutional amendment by a minimum number of states, approximately half or 15 in India, is required before the amendment becomes effective. This would be India’s 122nd constitutional amendment, making the longest constitution in the world even longer. Puducherry is not a state, but a union territory akin to the US Virgin Islands or Puerto Rico for the US. Thus, ratification by Puducherry itself is of minimal consequence to the overall country, and will not be counted toward the 15-state-ratification requirement. According to Ernst & Young India (EY India) [corporate website], the benefits of the GST [EY India report] include, among other things, a wider tax base and lower tax rates, elimination of a multiplicity of taxes, streamlining of national and state tax administrations, and automation of compliance procedures. The EY India study further points out that “[t]he GST structure would follow the destination principle. Accordingly, imports would be subject to GST, while exports would be zero-rated. In the case of inter-State transactions within India, the State tax would apply in the State of destination as opposed to that of origin.” The GST amendment seeks to empower both the central and the state governments of India to levy tax on goods manufactured and services provided in the country. Currently, the central government cannot [Indian Express report] “impose any tax on goods beyond manufacturing (Excise) or primary import (Customs) stage, while states do not have the power to tax services.” India Prime Minister Narendra Modi [official website], a proponent of the GST, stated [Financial Express report]: “People joke on WhatsApp about the bills they have to pay when they go to restaurants. They highlight the food payment and the cess. With GST, all this will be simplified. Also, the state and centre will trust each other more. The entire federal structure will be strengthened.”