Tax tool should push growth

Although over the last two decades, India's direct tax system has been substantially rationalised to emerge as one of the most potent systems in the world, the babus in the CBEC continued to hold their grip on the indirect-tax collection system. As a result, the government's revenue from excise and customs duty, which once formed the biggest chunk of gross annual tax collection, started losing space to direct tax kitty. Soon, the direct tax collection surpassed the revenue from indirect taxes. Also, imports became more attractive than domestic production.

In 2016-17, the indirect tax revenue was able to catch up with the direct tax collection following large input from service tax after the government took series of measures to fight tax evasion in this category. The government collected Rs 8.47 trillion in net direct taxes in 2016-17. Indirect tax receipts from central excise, service tax and customs duty totalled Rs 8.63 trillion. Excise duty collection was Rs 3.83 trillion. Customs duty collection was Rs 2.26 trillion. The services sector contributed Rs 2.54 trillion.

Going by the growing complications in the implementation of GST rates, it appears that the authorities are not going to make it easy for those business enthusiasts favouring the Prime Minister's 'Make in India' campaign to take up domestic production more seriously. For the indirect tax authorities, it appears that rules, controls and cumbersome calculation procedures, which are key to their regulatory importance and survival, are working as unexpected GST jammers. The GST implementation procedure has already offended a host of industries and even certain important ministries as healthcare, which is facing severe public criticism for shortage of several life-saving drugs since July 1. Originally, the health ministry sought an extra two months' time to make GST applicable to drugs and pharmaceuticals to rationalise supplies at chemists' shops. The GST authorities turned it down.

Today, a host of drugs, especially for critical ailments such as diabetes and high blood pressure, are not easily available to consumers. The government was warned by the industry as well. For instance, Biocon chief Kiran Mazumdar-Shaw cautioned of possible drug shortage after implementation of GST saying unprepared stockists in the supply chain are refusing to stock medicines. She said in the run up to the GST, pharmaceutical firms have taken a huge hit on their businesses in June as a result of pharmacists declining to keep stock. But, CBEC babus stuck to their guns. No grace period was given to stockists and chemists to properly align themselves with the tax regime. Now, the automobile manufacturing industry is upset with the sudden hike in GST rates for bigger vehicles, within a month of the GST announcement. The latest notification on differential GST rates on takeaways as well as food served from a non-AC area of a hotel or restaurant to AC area varying from 12 per cent to 18 per cent to 28 per cent added to the confusion and exposed, if anything, the complicated mind of taxmen more than anything else.

It is a matter of concern that GST has not changed the mindset of the indirect tax administration. The whole purpose of GST was to make it manufacturer and market-friendly. Instead of expanding the market and boosting the economy, high rates of GST threaten to choke the domestic production and compress the demand and consumption of 'Make in India' products. Even home-made luxuries need not be highly taxed to make them the preserve of only the super rich. High GST rates will adversely impact exports and benefit imports. They are bound to diminish the government's 'Make in India' effort.

Few will disagree that moderate rates of GST will make the new indirect tax initiative a success from the very beginning and keep the inflation rate within the government's target of 4-6 per cent. India's $2.4-trillion economy needs to transform itself by doing away with the internal tariff barriers and subsuming Central, state and local taxes into a unified GST. While the rollout has renewed the hope of India's fiscal reform program regaining momentum and widening the economy, the post-GST actions by the indirect tax administration are giving rise to fears of economic disruption as a rushed transition and complicated high rates of taxation may not ultimately help achieve the desired goal.

The purpose of the long waited indirect tax reform should not get lost in high GST rates and complicated assessment procedures, leading to litigations. The BJP-led NDA government is fully aware of the fact that at the time of its coming to power in 2014, tax demands of over Rs 4 lakh crore were under dispute and litigation before various courts and appellate authorities. GST is the biggest tax reform in India. It is founded on the notion of "one nation, one market, one tax". However, in the end, the Centre had to make several compromises, including those with state governments, to get GST started. The rollout has renewed the hope of India's fiscal reform programme regaining momentum and widening the economy. The GST administration should make sure that the momentum is not lost.