GST Reforms–Mother or Monster?

Asis Ranjan Sengupta

After the note ban or so called Demonetisation disaster, this Modi dispensation, again struck the masses with another weapon, namely, GST. On the face of it, 'One Tax, One Rate, One Nation', sounds a very good idea. It is supposed to lessen the hassles, simplify procedure, and ensure 'ease of doing business' sans the threat of 'Inspector Raj'. But in reality, what has been introduced, would prove monstrous, particularly to the small and medium size Entrepreneurs, from the remote and small towns,or markets, devoid of proper, steady power supply and Internet connectivity.

Instead of having minimum rate structures, GST in the present form, has got four categories of rates, with 28% being the highest rate, in most of the non-luxury items. Thus India ranks in terms of notoriety, as the only country having highest rate of GST. Total 160 countries in the world have opted for uniform Tax structure either in VAT or GST format. Presently Australia, Canada, Singapore, New Zealand, UK, Malaysia, Indonesia, Pakistan have GST. Others follow VAT module. GST has two types, uniform and dual. India has adopted dual model of Canada. Hree is a comparative rate chart.

1) Australia 10%, 2) Canada 5%, 3) Singapore 7%, 4) New Zealand 15%, 5) UK 20%, 6) Malaysia 6%, 7) Indonesia 10%, 8) Pakistan 17%.

The Tax administration, totally software based, will be run by a newly created organisation, namely GSTN Ltd, to be managed and administered by non-government entities like, HDFC Bank, ICICI Bank, LICI, with Govt of India having a minority stake of 49% in it.Such an apex body again will run it by engaging hired local vendors. Who are likely to hire staff on temporary contractual basis. So the secrecy or privacy of the participants is not guaranteed, and 'data security' may be under threat.

It is against the Federal structure of fiscal benefits. At present Center's share in the indirect Tax revenue is 63%, but with GST, the share will go up to 83%, depriving the states of the difference amount. Thus the taxing power under GST is more 'Union Centric', and is likely to jeopardise the limited fiscal sovereignty of the states.
There are four slabs of rates, 5, 12, 18 & 28, but most of the items, having 60% market share are in the higher two brackets. Again 5% of the items are in the highest bracket. This is alarming and defies logic. Fair taxation regime, encourages tax payers' honesty, as it is taken for granted in any tax administration principle that common people are honest tax payers in general. But higher slab provokes tax evasion. Higher tax compliance ensures taming of inflation, but such basic and vital issues have been neglected.

The arbitrary tax rates, appears to be the outcome of intense political arbitrariness, and power of industry lobbying. Else how most commonly used items could be categorised under higher slab, and more uncommon luxury items could fall in lower slabs. Same fuzzy logic is active, otherwise how can Cashews and raisins can attract 5%, and in the same breath, almonds and other nuts can attract 12% ? The newly imposed 12% tax on Sanitary Napkins proves its gender sensitive feature.

The GST council decided setting up of an anti-profiteering authority by law, or designaling an existing authority to ensure that the reduction in tax rates are passed over to the consumers, and not usurped as profit, this, along with empowering the GST officers with the authority to conduct search, seizure and even arrest, are all draconian steps to further strengthening of the 'Inspector Raj'. This concern for the citizens is coning from the Government, which, curiously enough, has refused to share the effects of global crude prices reduction to the countrymen, by raising the excise duty abnormally, and conveniently kept it out of the purview of GST.

Like the demonetisation, Government came out with the theory of fighting corruption, and ensuring transparency in taxation and finance, in justification of GST too. But kept the real estate sector, the highest black money circulation zone, out of its purview. Cement, iron, Bricks, other components, including work contracts are to be taxed, but the end product that is the house, building, flats, sell and purchase transactions are not under GST net. This raises the intention of the government, so far as the fighting black money is concerned.

Similarly, such high tax generating sectors like liquor or Electricity is out of the net, for reasons best known to them. In fact, inclusion of these sectors could have been instrumental in identification and streamlining of clandestine black transactions. The GST on Gold ornaments is megre 3%. This is another naked example of successful lobbying by the powerful Gold merchant houses. Power generation and distribution in India is largely in the hands of corporate, and they are looting the consumers ruthlessly, as evidenced by the revealations made by Kejriwal in Delhi. He exposed the plunder and the tariff was forced to be reduced to the Ire of Ambani, Adani and Tatas. The black money is circulated mostly in Real Estate and Gold and Liquor transactions. The three sectors, namely, Oil, Real Estate, and Liquor, togethier with such vital sectors as Road Taxes are, constitute 40% of the country's GDP, Their exclusion makes the Tax revenue rationalisation endeavour, a less important exercise.

The most alarming aspect of this new regime is the multiplication of returns. In place of filing 2 service tax returns in a year, now they will have to submit 3 returns a month, that too on line, the difficulty will be further aggravated by poor net connectivity in majority areas. 3 in a month means 36 in a year, additionally 12 Tax Deductions at Source returns, one in each month, plus one annual return. So in place of 2, now 49 returns. Again one having units in say ten states, will have to file (49×10) 490 returns. Imagine the plight of the small and medium enterprises. They will have to devote more time to tax compliance than their trades. At this point one must also deep in mind that now the threshold limit is only 20 lac, whereas it was 1.5 crore previously. All these being on line, authorities, till date have failed to ensure smooth running of the software system, loaded with such huge volume of transactions. So in all consideration, after demonetisation, this GST is another conspiracy to ruin the unorganised sector, and small traders/producers.

Another falsehood is that, GDP will rise to the tune of 2%, as a result of GST imposition. No country having such a tax structure worldwide, has registered any such mammoth growth with the initial imposition. Recently, a survey conducted by HDFC Bank, confirmed that GST may register a marginal growth of 0.04%.

Finally, due to the change, a large number of SMEs and Start Up enterprises will be under a harsh tax regime freshly, though big corporate or business houses will easily negotiate the challenge, the small fries must be gasping for survival. In an estimate, nearly 60 million business houses will face this tax trauma, and the complication in the procedure, and the prevailing confusion will raise the number of tax disputes. Already 100.000 tax appeals are pending as on March 2015, and situation is likely to go out of hands.

Another nightmarish demonetisation like experience is on the cards, as the GST council was an exercise at the political level only, without taking care of the genuine stake holders. Economists and Experts everywhere are astonished by the frenzied hurry with which it is being introduced without proper preparedness, and launching of awareness drives over a given period. The expectations are high from all quarters, but misconstrued adventure may end up in another Don Quixote charging the windmill episode. The effect may must upset the economy in short and long run. After all the GST in the present form, is not the original one. Even the draft proposal of 2013 was different in many basic features. Even after the assumption of power by the present government, and a historic U-turn, the sensible lobbies insisted on putting a cap on the highest permissible rate. The suggestion was constitution amendment with a maximum permissible limit of 18%. But the RSS affiliated think tanks,guiding the government, were adamant to keep the door open for upward revision in rates in future, without further lengthy procedures of Constitution amendment. The present policy makers, is anxious to make good the set-back suffered by the Demonetisation misadventure speedily, by squeezing the people. But global experts are apprehensive of more setbacks in foresight.

Frontier
Vol. 50, No.6, Aug 13 - 19, 2017