GST system badly designed, executed – Tamil Nadu Finance Minister Thiaga Rajan

Tamil Nadu finance minister P Thiaga Rajan said on Friday that the Goods and Services Tax (GST) system had been badly designed and executed.

He would not even agree to put a toothbrush in the GST system if it wasn’t already there, Rajan said, when asked about the likelihood of bringing motor fuels under the GST.

“When we went into it, we went with apprehension,” he said. “We knew we were losing our independence of taxation as States. Already all direct taxation was Centre, the indirect was partially with us and the Centre. We went in with a lot of trepidation and fear and some hope of outcomes that would give long term and widespread benefit.”

However, nearly five years down the line, the fears have grown immensely while the benefits have not even been realised by 20-30%.

“Sensible people may agree or disagree on a design or system or platform, but logic says you keep re-evaluating based on the outcomes. Have you achieved the goals you wanted? Have you avoided the failures you feared? If the answer to both those is ‘no,’ logical people would say ‘re-tool, re-structure’,” Rajan said while addressing a virtual meeting organised by IIM-B’s Alumni Association, Chennai Chapter on ‘Tamil Nadu: The Road Ahead’.

On the economic situation in Tamil Nadu, Rajan said: “In the last 7 years …we went from 16% debt to GDP to 27% pre-Covid and from 11% of revenues to interest payments to 20%, all before Covid. We have serious underinvestment and from 2014 till now, we are a revenue deficit state.”

But it was in a good place as far as the long-term and macro perspectives went, he added.

Rajan said among the aspects that needed fundamental transformation were revenue management, expenditure management, contingency risk management, litigation and asset management, accountability and audit.

He also shed light on the Economic Advisory Council to the Chief Minister that has been formed with eminent members including former RBI Governor Raghuram Rajan, former chief economic advisor Arvind Subramanian, and former finance secretary S Narayanan as well as Nobel laureate Esther Duflo and honorary professor at the Delhi School of Economics Jean Drèze,

“The CM was very clear to get world class people to help us think beyond today to the next 5,10,15 years. The people who we have got are that calibre. We are not just talking about what should be in the next Budget but about how do we elevate it,” he said.

The government is also not looking at divestment or asset sales, he said.

“While nothing is off the table, it is not the right time to do asset sales because the system is broken and we first need clearer understanding and some fix of it before selling,” he explained.

One of the biggest problems in the State is that of land management, he pointed out.

“The foundation of free enterprise is inalienable and clear and transparent and enforceable property rights. We don’t have that. We have one record with Revenue, another record with Property Tax, another record with EB…. This whole system is broken and exploitable and abusable and it gets done all the time. So sooner or later, we have got to fix that and that is a State subject,” he said.

It needs fixing because the biggest barrier to large industrial development is getting large land banks, he said.