GST : Taxing times ahead

GST Modi Sarkar

The GST is still an unfinished business and its hurried execution will hit consumers and merchants

Come July 1, precisely by the midnight of June 30 and July 1, India’s tax system will have its tryst with destiny. The NDA government will roll out the ambitious Goods and Services Tax, popularly known as GST, at a one-hour programme in Parliament in the presence of President Pranab Mukherjee. Indeed, the tax reform — which aims to create a common national market by replacing a series of central and local taxes such as excise, value added tax, octroi, service tax into a single unified levy — is an epochal event in the history of India. GST was first suggested by UPA’s P Chidambaram in his budget speech in 2007-08 and in 2017 the Parliament gave its nod for the implementation of the tax Act. It has taken 11 years, three governments, four finance ministers and several thousands of hours of discussions between officials, State government and trade bodies to cobble up GST in the form it will be rolled on July 1. The Centre claims the GST will help in a seamless flow of goods and services and can improve ‘ease of doing’ business. The current way in which India’s tax system is structured is problematic, according to the Centre, because it allows for compartmentalisation of markets due to many inter-State taxes which didn’t qualify for credits. GST might simplify the taxation structure and remove distortions in allocation of resources.

That said, there are some reasons to believe the tax reform is a half-baked affair even now and can impact the economy and people’s lives. First, despite all the marathon discussions claimed to have taken place between the Centre, State governments and other stakeholders on GST’s fine print, the unified tax instrument remains one of the opaquest and most obscure of its kind in the history of India. This is reflected in the fact that even the most tax-savvy chartered accountant cannot say for certain which are the clauses in the tax law that will push up, or down, rates and how, in spite of the fact that there is a rate cap of 28 per cent on all goods and services. The Government has not bothered to take the public into confidence and there have been few grassroot-level campaigns to sensitize the larger, common public on how the new tax regime will impact their life.

The Modi Sarkar has been treating GST mainly as a tax reform that targets businesses and similar enterprises in the country, whereas the fact is the poor and lower middle class consumers, who have already been hit hard by the currency ban of November 2016 and its lingering effects in the economy, are the ones that will be hit hard by the price hikes and inflationary pressures that the GST will introduce. The uncertainty over the transition to GST has already rattled businesses across India so much so that they have dumped considerable chunks of stocks at hefty discounts, paused production and even staged protests. And this could be just a start. Independent economic analysts predict that the economic disruption in the coming quarters could be much higher given the low level of awareness about GST and preparedness. Finance minister Arun Jaitley, who initially said India’s GDP growth rate to be boosted by 1-2 per cent over the long-term due to GST, is also on the back foot now with regard to the tax reform’s potential to boost the economy.

There is no official estimate, or guesstimate, on the kind of inflation GST-induced price hikes could trigger in the country. The Centre feels such an estimate at this stage will obviously run the risk of falling short of expectations. But the sheer fact that prices of most essential goods and services, such as hardware material or dining or cinema tickets, could go up anywhere between 14-28 per cent is itself proof that the inflationary damage of GST could be alarmingly anti-people and can pull down the economy several notches down in the short to long term. If demonetisation could impact the general public life way beyond expectation, it is anybody’s guess how the widespread price fluctuation arising out of GST’s implementation could jeopardise the formal and informal economies of the country. Economists siding with the government say that these pains will be put to rest in the longer term when growth picks and goods move hassle-free across States, cutting logistic costs and entry-exit taxes and other nagging levies. But that’s hardly an excuse for the woes that would precede the reform especially given the fact that the victims of such a reform belong to a class of society which will find it extremely difficult to get out their precarious economic conditions as fast as the armchair economists expect them to. Mind you, the GST is an indirect tax. It is levied when a consumer buys a good or avails a service. So, in most occasions the impact of GST will be scattered and most people won’t be able to realise the impact soon enough. It’s a silent killer.

Equally important is the worries around GST’s impacts to India’s federalism — loss of freedom for the State governments. States’ ability to choose their own strategies to mobilise tax-revenues will be clipped in days to come. This is blow on democracy as was pointed out by economists such as Prabhat Patnaik, who called GST a “fundamental denial of choice to the people, a basic attenuation of democracy”.  It is surprising that other than a few States such as the Left-ruled Kerala or TMC-led West Bengal, most States decided to toe the central line, eyeing the extra revenues being offered. This carrot and stick of the Centre, sadly, will end up putting the very democratic fabric of the country at risk.

Another worrisome fact is the supreme powers given to the GST Council, the government body that runs the tax reform, and the GST Network, which is a cluster of private banks that executes the GST’s technical aspects.  While the GST Council’s decisions cannot be, technically, questioned by Parliament, GSTN, being a suitably vague private entity, cannot be audited by government auditor CAG. The CAG has already questioned this double standard.

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