GST deficit slowly reducing?

 

EENADU Telugu Nov 24, 2017

• GST after disrupting economy for continuously for 5 months limping towards zero deficit.
• In July 2017 it was utter choas, August ended with deficit of 29% (Rs.12,210 crores) improved in September to 24% (Rs.10,343 crores) and further improved during October 2017 to 17.6% (Rs.7,559 crores). Quarterly (Aug-Oct 2017) collection stood at Rs. 98,930 crores against target of Rs.129,042 crores with 23% deficit of Rs.30,111 crores.
• This would enlarge fiscal deficit from 3.2% of GDP to 3.5%. Already GDP growth rate took severe beating nose diving to 4 year low of 5.7% which otherwise should have been 9.1%.
• Oil prices are shooting up with current price at its 4-year high of $63.4 per barrel. The rising prices will further impact our fiscal deficit and inflation.
• The resilient Indian economy withstood impact of harebrained demonetisation and even before it recovered fully, Modi unleashed badly designed GST only to demonstrate that he is bold and his intentions of continuing financial reforms but causality is the nation and its people. Boldness is different from recklessness, he failed to grasp.
• Now, with sentiment completely destroyed, investments at standstill, informal sector decimated, agrarian sector in deep distress, construction paralyzed, empty coffers, wide ranging joblessness, dwindling exports, uncontrolled imports, rising oil prices and so on are having its adverse effects on economy, simultaneously. How long consumption driven economy will survive on a single service sector? There is no one who could pop us up from our self inflicted distressed economy.
• Any economist will tell you that the only way to boost a sagging economy is by increasing government spending on infrastructure thus creating large scale construction jobs and increasing consumption, funding it by widening fiscal space by increasing fiscal deficit even at the risk of higher inflation. Modi is just not doing that and result in near future is anybody's guess.
• Tax terrorism in the form incessant raids by taxmen and trying to impose service tax on software exports with retrospective effect from 2012 will further ruin any chances of economic recovery.
• While GST deficit might become zero by the end this financial year, after 3 quarters, it has left us in deep distress, gravely wounded and uncertain future.
• Who is responsible for this all round distress? ... The answer is Modi and his quack advised Modinomics.

Spending on infrastructure projects could be lower as sluggish GST growth have upset the government’s budget calculations and GDP growth rate is to take a further hit. The revenue shortfall could be over Rs. 80,000 crores if the current trend continues until the end of the year and will force a re-think in government spending. GST's ambiguous rules, onerous return filing system and glitches with its IT back-end have made doing business far more complicated for many companies. Frequent changes in tax rates launch have heightened business uncertainty. Hurried GST roll out had resulted in a lot of chaos and pandemonium. PSU's reduced dividend, RBI's less than half dividend all have impacted government revenues contrary to budget projection of 17% growth in tax collections. Above all, psu banks recapitalisation and rising oil prices needs to be supported from the budget. So where are we heading for?

Tax terrorism in India

Tax Terrorism is a term coined by Arun Jaitley, who was then Vodafone's advocate. It means putting illegal and extra legal pressure on the taxpayer to extract more tax from a honest taxpayer. Reasons that encourage tax terrorism are that Indian tax laws are oriented towards maximum collection, retrospective tax laws, and imposition of tax targets on tax inspectors. Tax terrorism effects the growth rate of a nation, ease of doing business ranking, FDI & FII investment will decrease.

The term ‘tax terrorism’ was extensively used by Modi to describe the adversarial approach adopted by tax authorities under the UPA. “The tax terrorism prevailing in the country is dangerous. One can’t run the government by thinking that everyone is a thief,” he said, addressing members of FICCI. Subramaniam Swamy said as much as ₹31 per litre out of petrol prices of ₹75 at the bunk flowed into the government’s coffers as taxes. But Indian taxmen lost a case with Vodafone in Jan 2012 (capital gains tax on an offshore transaction) in the supreme court and they amended tax laws with retrospective effect, making Vodafone liable for a tax on a past transaction.

If the government of the day is short of cash, it can delay your refunds, open up your old returns for scrutiny or extract in myriad other ways. Dealing with tax authorities, if they do decide to ‘terrorise’ you, isn’t easy. You will need to hire an expert and to convince the assessing officer of your arguments. You can also get into trouble if you delay payments or forget to pay your taxes on time. While the taxman may take his time with your refunds for many reasons, if you delay paying your annual taxes, you not only have to pay interest at 1 per cent per month on the tax due, you can also be asked to cough up a penalty of another 1 per cent per month totaling up to 24 per cent per year.

If you’re in India, evading taxes is downright foolish. But paying them is no guarantee that you will certainly sleep well at nights.

On Jul 1, 2017, while rolling out GST, PM Modi described GST as the 'good and simple tax', a radical step towards the country's transformation into a common market, which would help businesspersons putting an end to tax terrorism and inspector raj. However, President Pranab Mukherjee cautioned that "GST is a disruptive change. When a change of this magnitude is undertaken, however positive it may be, there are bound to be some teething troubles and difficulties in the initial stages. We will have to solve these with understanding and speed to ensure that it does not impact the growth momentum of the economy," Mukherjee added.

On Nov 7, 2017, former prime minister Manmohan Singh alleged that demonetisation and roll out of the Goods and Services Tax (GST) have sown a "deep-rooted fear of tax terrorism" among the business community. At a time when the economy has slowed down considerably, despite favourable global macroeconomic conditions, the fear of tax terrorism has eroded the confidence of businesses to invest. 

Veda Vyasa said in the Mahabharata that a king should collect taxes 

like a bee collects nectar from flowers, painlessly

Today, we see taxmen are raiding black money hoarders and tax evaders ruthlessly every day. Needless to say that raids will only end up in increased political and bureaucratic corruption and not increased revenues to government. Enforcing tax compliance was not the real reason for this tax terrorism. It is the failure of Modi & Jaitley's schemes like IDS, Demonetisation, GST Roll out etc resulting in severe cash crunch faced by Government. Revengeful Modi resorting to tax terrorism wants to demonstrate to the world that he means business and all his schemes are in fact paying off with delay. But what he is failing to gauge is that sentiment getting destroyed, informal sector decimated, agrarian distress, construction paralyzed, empty coffers, joblessness, dwindling exports, uncontrolled imports and rising oil prices will have its telling effect on economy sooner or later. How long consumption driven economy will survive on a single service sector? Ask any economist, he will tell you that the only way to boost economy is by increasing government spending on infrastructure thus creating large scale construction jobs funding it by widening fiscal space even if it requires increasing fiscal deficit. Modi is just not doing that and result in near future is anybody's guess.