GST: To be or not to be
GST is the colossol overhaul of Indian taxation system, plagued by multiple and multi level taxation. Indian taxation system involves myriad tax rates, slabs and duplication of taxes at several levels. Each state has its own tax rates and rules
GST was conceived to remove all the current anomalies in taxation structure and convert India into a One Nation One tax One market. Then why the debate and war of words over its efficacy and utility? To understand this we need to sepearte the political and economics narratives. Politics in India follow a set pattern where opposition is meant to oppose whatever the ruling Govt proposes. Even BJP opposed GST when INC was trying to implement it and now it’s the turn of UPA to do the same. There is hardly any merit and substance in the political narrative against GST as it is just meant to confuse people and it is doing exactly that.
Coming to economics, we must understand why the current form of GST has undergone a transformation from the originally conceived idea, and thus causing apprehensions.
a. Originally GST was supposed to be just one rate one tax but states were unwilling to let go of their powers to tax and thus was born SGST and UTGST ( in lieu of VAT or state sales tax) and CGST ( in lieu of Excise duty). IGST came in place of CST for inter state transactions and CVD which is levied on imported goods. We must however understand that these are’nt different taxes but same tax named differntly depending on the pocket they have to go to. SGST will go to the state, CGST will go to Central Govt, UTGST will go to the Union Territory and IGST is just a holding tax which will get squared out once the goods are taxed in the state they are finally consumed and input credit availed of.
b. There was supposed to be just a single tax rate instead of various slabs of 0%, 5%, 12%, 18% & 28%. In a country where the demographic inequality is far too wide, a single rate for food products like Milk, Vegetable, Grains which comprise the major expenditure of the underpriviledged and Packaged foods, Soft drinks etc being expenditure of the well to do, just cannot work. This is a sure shot recipe for increasing the already wide gulf between the haves and have nots. Govt had to consider a lower tax rates for goods used primarily by poor and tax the luxury items at a higher rate. A single rate can work only in a society which is developed and the gap between the classes is not too wide. Yes, Govt. could have done better by limiting the slabs to 3 instead of current 5.
c. Filing of several returns is another issue. In a country where the tax base is less than 5% of the entire working popuation and where every citizen tries his best to save whatever he can by suppressing the taxes, it is but natural that Govt would want to have a system which is fool proof. The problem with people is not the no. of returns, but the prospect of never ever being able to cheat the govt. of the taxes again! It will take a while for people to accept the reality of honest business against a life long dealings in unaccounted transactions so far
d. Levy of very high penalties for non compliance: We have the propensity of bribing our way out of trouble and whenever faced with consequences of our unaccounted deals, we simply offer a piece of the cake to the authorities and go back to our crooked ways. There is a need for a deterrent that is much more than what is just “taken care of”. Further, total elimination of physical interaction with authorities would ensure that such settlements are not possible
e. Major benefits that GST would bring to the table is total elimination of octroi, entry tax, road permits, way bills and other impediments to the movement of goods across the country. Stoppage at every state and district borders by RTO officers, tax vigilantes were the major reason for delays in transportation. The total travel time for goods is expected to reduce by 40% owing to the change in rules, besides bringing considerable savings in outgo incurred in pampering of various inspectors. This alone is the single most beneficial aspect of GST. But pessimists just don’t relent. They have reservations with e-challans. Yes, this is a cumbersome procedure but I guess the entire exercise is going to be a learning curve for all and corrective measures would surely be taken in the due course.
f. Have you ever claimed or received a tax credit for expenses made on office stationary, telephone bills, pest control, travel expenses and other business expenses? Though the tax on individual bills are negligible, at the end of the year it could be a substantial amount. You will now be able to claim input credit on all such expenditures made for the business
Agreed that the current form of GST is not as envisaged and not perfect, but considering the political tug of war in our country, Govt had to take a step forward taking everyone along. Yes, it will cause pain, but has change ever come without a price? Problem is not with GST, problem is with our acceptance of change. We cannot be bothered or be disturbed from our stupor and unwilling to come out of our comfort zones. Birth of a child turns the world of parents upside down. Sudden cessation of parties, sleepless nights, cleaning of potty, hereto unimaginable suddently becomes acceptable at the prospect of a beautiful life ahead! We accept this upheavel because we can forsee the nurturing of the new life. If we look at GST in the same way, with hope and expectations, we would not see any demons. Its just how we perceive things. If we believe it to be a monster, it would appear to be a monster! No change can be without its share of problems. But one cannot stop evolving, give up experimenting, give up the experience of new creations just because it might be painful. This is the appropriate time for the famous tag line: Darr ke aage jeet hai or Pain ke aage preet hai!!