Sunday, 4 June 2017

GST Mangled beyond recognition

Goods and Services Tax (GST) is a comprehensive indirect tax on manufacture, sale and consumption of goods and services throughout India to replace taxes levied by the central and state governments applicable w.e.f. July 01, 2017. GST is a consumption based tax, therefore, taxes are paid to the state which the goods or services are consumed not the state in which they were produced.
  • GST is a tax reform, impacting every sphere of business activity, as number of business decisions taken based on the current tax structure may no longer be relevant in the new GST regime. Centre would levy Central GST (CGST) and States would levy State GST (SGST) on every supply of goods and services within a State. Integrated GST (IGST) would be levied on all inter-state supplies by the Centre. IGST would have to be paid on all inter-state supplies, be it in the nature of a sale or stock transfer.
  • Five slabs have been approved by the council. These are zero, 5%, 12%, 18% and 28%. For bullion GST is 3%.
  • Cess and surcharges are subsumed in GST. Except for the cess on demerit, luxury and polluting items such as tobacco, luxury cars, aerated drinks and coal over the peak rate of 28%. It would be used for compensating states for any revenue loss due to GST for the first five years from this July 1, 2017. It would be there for these five years only.
  • The problem is that most states are revenue starved and would surely like to use provisions under the GST laws to raise tax levels and reduce their budgetary deficits. They have already succeeded in keeping alcohol out of the purview of GST. Petroleum products have also been kept out of GST as these are huge cash cow for the Central government. 
  • Real estate, except for land leasing, alcohol and electricity are excluded. 
  • The problem is that most states are worried that the introduction of GST will reduce their revenues from state level taxes. While centre assures to compensate such losses for a period five years from the cess, no one trusts centre that it will fulfill its obligations in time.
  • Uniform GST across the nation undermines federal spirit of our constitution granting fiscal autonomy for states. USA does not have GST as it ensures high autonomy for the states.
Multiple GST rates, cess, and exclusion of certain items -- all these goes contrary to the entire spirit of "One nation - One Tax" GST. Instead of the original concept of having a single-point tax at the retail level, there will now be a multiplicity of taxes. One may try to explain GST as a tax that replaces all others, but ultimately, it has now become a hydra-headed creature with several layers of taxation. 

The GST is being publicized as a panacea for many ills in the economy. The projection is that it would raise GDP growth by at least 1- 2 per cent, besides making it much easier to do business in the country. The fact is, however, that in the current mangled format, GST may not have the desired impact at least immediately. It could actually lead to higher inflation because of the increased tax levels on a range of products. Some years ago, we were told that VAT would do away with incongruities and corruption in the system, but this is nowhere to be seen. Although corruption is prevalent in all the arms of administration in India, its existence in the administration of VAT is mind-boggling.

It would have been a bold experiment worth taking if it was rolled out closer to the original format. Now in the mangled format beyond recognition, the results are uncertain. One can only hope that many of these infirmities are ironed out quickly, so that GST becomes a boon rather than a burden to the common man.

In order to produce a baby it takes one woman and nine month's time. 
Definitely not nine woman and one month time.

My View:
GST in  India is supposed to unite all indirect taxes under one umbrella and facilitate Indian businesses to be globally competitive. The Indian GST case is structured for efficient tax collection, reduction in corruption, easy inter-state movement of goods etc. But in its mangled format, GST resulting in GDP growth by 1-2% and meeting its stated objectives is highly unlikely at least immediately. On the contrary its contributing to higher inflation will hurt lower classes badly. While other countries has GST with one or two rate slabs and took almost an year for smooth transition, our Modi & Jaitley duo attempting for transition within three months is height of insanity. We, the people of India, must thank our stars, if GST doesn't create ripples and hardships to common man in next six months, similar to that of demonetization - whose effects are still haunting even after seven months. When will our Modi stop his wild adventures at the expense of common man just for his publicity of 'bold' reforms without proper analysis, thorough preparation, risk mitigation and at favorable time?

No comments:

Post a Comment