GST Blues ... World Bank update

World Bank’s update on India GST are worth pondering.

• The unified Goods and Services Tax (GST), which subsumed a web of central and state levies to make life easier for businesses, is one of the most complex and has the second highest rate in the world.
• As many as 49 countries around the world have a single slab of GST, while 28 countries use two slabs, and only 5 countries, Italy, Luxemborg, Pakistan and Ghana and India, use four non-zero slabs. 
• Indian GST’s top slab of 28% is the second highest of the 115 countries in the world.
• Separately, gold is taxed at 3% rate, precious stones at 0.25%, while alcohol, petroleum products, stamp duties on real estate and electricity duties are excluded from the GST and continue to be taxed by the central and state governments.
• India’s landmark tax reform was off to a chaotic start in July 2017.
• The tax overhaul brought along some teething issues and disruptions. Dealers stocked up on inventory and reduced production, pulling down growth to a three-year low. 
• Disruptions are due to lack of clarity on discontinuation of local taxes; demands for exemptions or lower tax rate; and on account of coping mechanisms to preserve revenue collections.
• Revenue collections have taken a hit. India missed its fiscal deficit target this year.
• India’s threshold for GST registration is also the highest. Businesses with an annual turnover of Rs 1.5 crore fall under the GST regime and are eligible to get input tax credit. 
• Those with annual sales below that and over Rs 20 lakh are allowed to pay a flat tax rate of 1% but can’t charge GST on sales or recieve tax credits. That’s mainly to ease the cost of compliance for small businesses.
• GST resulted in increased administrative tax compliance burden on firms and locking up of working capital due to slow tax refunds.
• High compliance costs are also arising due to prevalence of multiple tax rates implies a need to classify inputs and outputs based on the applicable tax rate.
• While teething problems on the administrative and design sides persist, the introduction of GST should be considered as the start of a process, not the end. The economy is adapting to the new system. 
• International experience suggests that the adjustment process can affect economic activity for several months, the benefits of the GST are likely to outweigh its costs in the long run.
• The key to GST’s success would be a policy design that minimises compliance burden by reducing the number of different rates, limiting exemptions and simplifying laws and procedures. A communication campaign is crucial to convey the various aspects of the new tax regime to businesses.

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Implementing the GST will only boost the competitiveness of manufacturing, trading and services sector engaged in selling goods & services throughout the country by economizing logistic delays, warehousing facilities and streamlining tax payment systems. The report is silent on size of country and its business net work, complexity of demography and support of political opponents to government body. The informal sector with single or family run shops & services with razor thin margins, high working capital costs they find GST compliance costs unaffordable. Today, the reality is small traders collect GST from consumers they neither pay the same to Govt nor file returns. They are spread across the country and impossible for forcing them to comply with corrupt taxmen. Those who were VAT payers in the past have cancelled their GST registrations. Every importer understates invoice prices and quantities especially from China. There is nothing which can't be bought for cash without receipt. This a big hole in GST collections and centre simply stares at this leakage and loss.

The strange death of Punjab

• Punjab is a flat, deforested and overpopulated patch of agricultural land. 
• This fertile land of five rivers has been a gateway for various armies invading the subcontinent. Punjab is one of the smallest state of India but is the biggest contributor to food grain. It contributes more than 20% of the food grain produced in India.
• As per 2011 Census, Punjab has a population of around 2.77 crores. Sikhism is the most practiced faith in Punjab, and 57.69% of the population belongs to the Sikh faith [59.9% in 2001 census]. Around 38.49% of the population practices Hinduism. Other faiths include Islam 1.93%, Buddhism, Christianity 1.26% and Jainism.
• In the state of Punjab there were approximately 120,000 active bore wells in 1970 but by 2010 that number had increased to nearly 1,300,000. Overuse of fertilisers and pesticides has resulted in lesser proliferation of rainwater and pesticides and the ground water had also turned polluted. Water of all five rivers in the state had been polluted due to discharge from dirty sewers and industry water. The state is facing acute water shortage as the groundwater is depleting at a higher rate than its replenishment. 
• The region erupted in the summer of 1947 seeing one of the greatest migrations in human history. Lahore, once the capital of Ranjit Singh’s empire and the birth place of Guru Nanak, happened to fall on the Pakistan side of Punjab, and a once cosmopolitan city was subsequently largely ethnically cleansed of its Sikh population. 
• Tensions on the Indian side of Punjab were reignited during the insurgency of the 1980s when Khalistani separatists fought for an independent homeland.
• The Punjabis of India were rewarded for their endurance, and for some time they enjoyed the luxuries which came with residing in the richest state in the country. 
• Over the last decade, the State appears to have taken a turn for the worst. The final nail in the coffin for the Sikhs is not coming from a foreign invading forces, nor is it coming from the Indian government. Rather, the Punjabi people are themselves to blame. This is not a genocidal tragedy inflicted by bullets, but rather an epidemic of drugs, widespread alcohol addiction, female infanticide, low birth rates, farmer suicides, caste discrimination, mass outward emigration and religious conversion.
• It is astonishing as to how a prosperous and seemingly innocent society has cascaded into becoming the narcotics haven of India.
• Amongst the youth of Punjab, 52% were found to be addicted to drugs, which is 18 times higher than the national Indian average of 3%. 
• The statistics regarding alcohol consumption are just as worrying. Nearly 33 crore bottles are consumed in Punjab annually.
• Sikhs are also known to have the most uneven sex ratio in the whole of India, with 900 females for every 1000 males. This should be their biggest disgrace and embarrassment.
• The fertility rates of Punjabi-Sikhs are so low that it begs the question as to whether they would continue to exist in India in the not-too-distant future. 
• Outward migration and lower fertility rates are not the only factors that explain the Sikh demographic decline. A climate of religious confusion and a lack of Sikh leadership have created a vacuum for missionaries and other religious sects to exploit.
• Unfortunately, the discussion regarding Punjab amongst western Sikhs only seems to concern the events of 1984 – the invasion of the Darbar Sahib complex, the pogroms of Delhi and the military curfews which turned the district into a garrison state. They have every right to stand in remembrance of this terrible episode in history. Nonetheless, the dialogue must move beyond this, and their attention should be focused on the Punjab of 2017 i.e. The Punjab of today.　
• It is important that they accept responsibilities for their own failures. For too long have they pointed fingers towards the central government. They seem to believe that everything is a part of a grand conspiracy by the ‘Hindu elite’ to intentionally destroy and undermine Sikhs. 
• Central government is certainly not doing enough to monitor the porous borders of Punjab to prevent the flow of opium. Recreational drugs are more accessible in the Punjab than any other State, and Punjab police often turn a blind eye to this. But ultimately, Punjabis bear the responsibility of consuming them. Though more law and order is needed, this is a grassroots movement, which should instead be focused on education and raising awareness.　
• If Punjabis have survived the authoritarian regimes of the past, then they have every reason to make their mark and flourish in a multicultural democracy, albeit an imperfect one.

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Hypocrisy in India

Hypocrisy is the behavior of people who do things that they tell other people not to do; behavior that does not agree with what someone claims to believe or feel. In India Hypocrisy seems to be flying everywhere. Hypocrisy is so deeply ingrained in our society and in our individual psyches that it is perceived as the way of life. We all believe in something, say something else, do something else and expect something else from others.

• We all hold liberal opinions when it comes to our personal selves but in the collective whole as a society we try and stick to our traditional values and beliefs.
• We all tend to make judgments as per our personal convenience. People are not affected by anything happening around them until it is personally effects them.
• We all do what the society expects and will expect the same behavior from others too. 
• The marriage system in our country is the biggest example of hypocrisy. We say we are a secular nation where there should not be discrimination on the basis on caste. When it comes to making matrimonial alliances, we all look for partners in the same caste. 
• Daughters are given freedom to educate themselves and make a career. Parents will look for a house for the girl where she gets to work and the in-laws have an open mind and are liberal. When it comes to their own house, they want daughter in-laws who should be homely, should know how to cook and look after the house; she should not work or do a job. This is the epitome of hypocritical thinking in our country. 
• When it comes to marriages the groom’s side is always demanding with a smile on their face. It’s not dowry but their expectations and pride as being the groom’s side never seem to reach an end. Even the bride’s side they need to show off in the society how much they are spending and how much they are giving the groom and their daughter. It is all about satisfying the society and maintaining their status in the society. 
• If it is a widower the society will sympathize with him and feel that he has the right to have a second wife. If the same happen in case of a widow they will talk about her and say she is morally wrong and she is not respecting husband's death.
• In messages and jokes everyone talks about sex and takes it lightly. We all want to believe that we have become modern and western in our thoughts. But when it comes to personal situations like own house and children, then they are expected not to talk openly about it.  
• We belong to a society where families expect their daughters to never have boy friends but then they force their daughters to sleep with a stranger and give him all the love and care just when he becomes a husband. 
• Most people have been physically involved with someone or the other and some have even had pre marital sex but if talked about in open it is demeaned and disgraced. 
• We are so judgmental about everyone’s behavior. It would be better if we just “live and let live” and mind our own business instead of peeping into other’s lives to point fingers at them. 
• In India girls’ dressing is held responsible for them being victim to rapes and harassment. If it was the revealing clothes that caused rapes then women all across the world should be getting raped. 
• Every man in his house preaches the so-called “decent” dress code whereas in the outside world the same man seeks pleasures from girls dressed in revealing clothes and finds such dressing “sexy”. These men won’t deny that they love the item songs in cinema where girls dress in short and revealing clothes. There, men love such clothes and appreciate it. 
• India should broaden its thinking and outlook. If one holds an opinion against something then they must stand by it, instead of changing their view as per the convenience in the situation. There are many other grounds on which hypocrisy is practiced in this country.
• We all say we love children whether boy or girl. All parents will say they are like-minded towards both boy child and girl child. Yet in their hearts of hearts they wish to have a boy child to carry forward their lineage. There are also people who bluntly say that they want boy child and such people engage in murdering the girl child and sometimes the mother too. 
• Large section of the society will claim to be non-vegetarians. But when it comes to Tuesdays or “navratras”, they turn vegetarian. The same rule follows for drinking alcohol too. This main cause of the hypocrisy is that we are seeking to attain the modern standards of the west while still clinging on the traditional values of our past. 

In our country we give more importance to what others think and what the society demands than valuing ourselves. If we need to grow as a nation we need to lose this hypocrisy and stick to our views. We need to take a stand: whether we want to cling to the past traditions or want to move past conservative thoughts and beliefs.                            

Hypocrites spend most of their time pointing out the flaws in others, 

and the rest of the time trying to flaunt their perfection ... Charles F. Glassman

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The above list neither exhaustive nor conclusive. Lying, cheating, corruption, nepotism, and so on the list is endless. In India, hypocrisy omnipresent. It is more prevalent in upper classes. While discussing or negotiating or bargaining etc, one has to be extremely careful in identifying the truth, correlate with body-language prior to making decisions. Any error would result in wrong decisions, loss of money and many consequences. Politics and businesses are the worst inflicted by hypocrisy.

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?