Monday, 3 July 2017

Jaitley: Take plunge or do nothing at all?

  • India tax to GDP ratio is 16.6% compared to 21% in emerging economies and 34% in developed countries.
  • But those nations provide excellent quality of governance and welfare measures with corruption at ground level unheard. Where as in India, there is such thing called governance in rural areas and in towns and cities it is mostly confined to catering services to upper classes.
  • Welfare activities especially in education, healthcare, drinking water supply and sanitation sectors are at their worst. 
  • Corruption bleeding the whole nation even 16.6% tax is unjustified. More tax compliance will only make rogues much richer while poor will remain poor.
  • In a large & diverse nation like India, GST undermines federal polity of constitution leaving states hitherto financially autonomous to fund their activities depend on centre for funds. Their ability to extend help to people during natural calamities will also gets diminished. That is the reason why USA has not adopted GST.
  • Indian version of GST with six slabs (0 to 28%), multiple tax rates for the same item, additional cesses as high as 290%, complicated tax credit procedures, with important items like petroleum products, alcoholic beverages etc excluded, it is not GST at all. It is simply improved version of VAT. The opportunity is squandered away by Modi & Jaitley. 
  • Among the virtues of all classes of people in India, tax evasion and robbing government money are predominantly prevalent. No one really thinks they are offences and unethical. Given this mindset, people will invent several loop holes in GST procedures and its effectiveness without co-operation of people will be insignificant.
  • Plunging with game changing tax reforms like GST roll out, without IT readiness, databases not up to date, and with out creating awareness even among enforcing officials is nothing but insanity and resultant chaotic conditions are most likely to pull down our precarious economy. 
  • Modi, Jaitley & Co haven't learnt any lesson from 'failed demonetization 2016' which costed nation more than Rs.150,000 crores and erosion of GDP growth by 1.5% which troubled everyone (especially poorer classes, informal sector and farmers) missing all its intended goals and nation is saddled with unintended consequences like expensive cashless transactions.
  • More importantly Modi & Jaitley did nothing during first two years except fudging economic data and trying to lobby for ratings upgrade from 'near junk status' which was refused citing high levels of national debt and mounting NPA's by public sector banks.
  • Modi & Jaitley, who opposed Congress sponsored better version of GST six years ago citing states autonomy compromising and violation of federal spirit of constitution, rolled out degraded and mangled GST hurriedly only to please FIIs and World Bank for ratings improvement. Otherwise there is no reason to do this way had they had any sense of realities of India.
Tax policy is as good as it is administered

My View:
Human trajectories doesn't change so easily. As long as people and enforcers are not honest to the nation, GST will also not give desired benefits similar to that of VAT & MODVAT some ten years ago, which failed to change anything. Incidentally in the name of GST much is publicized of simplicity of indirect taxation, compliance and ease of doing business without really doing any research or testing on the ground reality. Hence results could be very different. It may take over an year for stabilizing with GST during which period nation will face supply chain disturbance, artificial shortages, inflation, loss of jobs, and positive results could be expected only from third year on wards. Like 'failed demonetization' brunt will be borne by poorer classes, informal sector and agriculture while other well to do classes will  remain less affected. After two years several global & national economic factors will determine the state of economy and benefits of GST will never be known accurately. Instead of undertaking high risk whole sale reform with unknown results, it would have been wiser to identify and eliminate flaws in the existing taxation system itself would have been much easier, less riskier, less painful and more beneficial. Modi & Jaitley introducing GST a constitutional amendment bill as 'money bill' in Lok Sabha depriving Rajya Sabha its rights and privileges is a proof that the Constitution and the rule of law meant nothing to them, who are just third rated politicians not statesman. I suspect Modi's deep desire to go down in history as the greatest tax former, with eyes on 2019 elections, is the real reason. Sanity prevailing, he wouldn't have done this type of disturbing adventures at an overall expense of Rs.100,000 crores at the least, with unknown results. Another thing is that Modi & Jaitley are hell bent on destroying informal economy which provides livelihood to large number of uneducated and unskilled people but contributes very less in taxes and and take care of only cash cows i.e. formal sector which employs only 10% of people that too educated and skilled. These buffoons doesn't know that formal sector is hugely supported by informal sector for all their needs. How many times Modi will prove himself as a demagogue and worst economic manager of the nation?

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