GST Bill is through at last
Sound and salutary economic logic for once trumped parochial and myopic posturing by major political parties of the country when they all passed the Constitution (122 Amendment) Bill in both houses of Parliament.
It is also for the first time since the Modi Sarkar assumed office that it was able to accomplish after more than two years such a sui generis consensus for a forward-looking slice of indirect tax reform that has far-reaching repercussions in transforming the fiscal landscape in the federal set-up between the once all-powerful and mighty Centre and the weak-kneed states.
What the new GST regime promises to perform is “a harmonised structure of goods and services tax (GST) and for the development of a harmonised national market for goods and services”. This is easier said than done, given the fissiparous forces at play from within and without that put paid to all forms of constructive cooperation between the disparate States and the Centre to evolve a unified and common market for goods and services, a la the 28 members of the European Union (EU) which has a combined populace of less than half of India’s.
On top of this, complaints were galore that the Centre had a step-motherly treatment with the States in which its party is not in power or shared power in the States. It requires a dexterous and deft handling to have the preparatory GST work for quite a decade and it is still a work in progress with a lot of differences to be bridged and trust deficit built to make it a veritable game-changer for the overall weal of the country.
Once in place, the GST is going to transform the powers of taxation that States enjoyed under the Constitution. Essentially, hammered out by as many as 29 States and seven Union Territories with the Central government in the post-Independence annals, ushering in a uniform consumption-based tax structure across the land for almost all goods and services — save portable alcohol that is likely to be excluded from the GST’s ambit, and petroleum products pegged at a zero percent rate till such time as the proposed GST Council crafts a pact with the States and the Centre on an acceptable framework for taxation — is a refreshing development.
GST in the domestic context meant a unified, un-fragmented national market for goods and services that is accessible to small entrepreneurs and affordable to the ordinary taxpayers who had been paying a plethora of taxes in the purchase of goods or services. For the investing community and producers of goods, the GST addresses a serious obstacle to competitiveness especially when there remain multiple points of taxation and multiple jurisdictions across the country.
Once the GST kicks in, all the distortions would vanish, enhancing the ease of doing business and providing the much-needed capital to producers, besides stoking demand for goods. The new GST regime will also herald augmented investment flow from overseas investors as even the decision on taxation would become “tax neutral” to them pan-India with no differential tax regime playing one State against another.
As the benefits of the proposed GST regime are quite well-catalogued, there is some more distance to be traversed to reach the unified and single market pan-India. Among the foremost task ahead is the drafting of the specific Central and State GST laws that will again need to be passed in Parliament and State legislatures as an integrated GST law. Important decisions such as the setting of a proposed GST rate remain as GST is an indirect tax which by its very nature is regressive as it hurts the poor and the downtrodden more than the rich and the middle-classes.
So the proposed GST rate should be revenue-neutral without hurting the common man, even as it subsumes all extant taxes embodied in goods and services that the common man pays while consuming. While the main Opposition Congress sought the rate to be capped at 18 percent with States favouring the rate at over 20 percent, the working out of an acceptable and non-inflationary appropriate standard rate that is applicable to both the Central GST and State GST is a big challenge.
It is, however, reassuring that the Union Finance Minister Arun Jaitley said that his discussions with States led him to believe that the rates would be moderate and less than onerous than the combined burden of the Central and State taxes on goods and services. This now comes to about 27 percent. Without hitting the revenue for the coffers and without bruising the tattered pockets of the poor/the lower middle-class and the middle-class for the indiscriminate levy the GST threatens to mete out to all purchases, the options are tough for the authorities to zero in on a standard rate that balances multiple goals.
If good sense triumphed (GST) as the former Finance Minister P. Chidambaram played pun with GST nomenclature, wisdom demands that responsible Opposition parties too chipped in with positive suggestions to make the rollout a smooth and glitch-free one before long. It is also true that both the Centre and the States seek the rate structure under GST to be one that the revenue received is equivalent to what they have been getting now.
No doubt, experts have extolled the benefits of the GST contending that its implementation is likely to foster a seismic shift from a complex, multi-layered and cascading indirect tax system to a single unified indirect tax system that lets tax set-off across the value chain, both for goods and services. This is bound to bring down the cost of production, rendering domestic goods competitive vis-à-vis imports, besides increasing their profitability. Much now depends on the expeditious rollout of the Goods and Services Tax Networks (GSTN) programme and the preparedness of estimated seven million taxpayers to interact with it, according to V.S. Krishnan, Advisor, Tax Policy Group, EY. Once in place, the GSTN will provide a common platform for registration, return filing and e-payment. The GSTN will integrate the Common GST portal with the tax administration systems of the Centre and States.
In the eventual analysis, the indubitable fact remains that GST is the apt anodyne to the distortions of diverse indirect taxes the Indians must perforce have to disburse in the past. It is another unedifying saga that on top of the crushing indirect tax burden, they got the double whammy of cess/surcharge in the name of one development cause or another, the consequences of which as to whether they have really meant for the cause and in that case how are not shared with the public. It is time Indians embraced the new tax regime with open arms in the hope that it strikes a proper balance between revenue needs of the authorities and the overarching need for a less burdensome tax burden for the common man. IPA
(The views expressed are strictly personal.)