Opinion Op Ed 30 Jun 2017 GST is an idea whose ...

GST is an idea whose time shouldn’t have come

COLUMNIST | ARVIND P DATAR
Published Jun 30, 2017, 6:35 am IST
Updated Jul 1, 2017, 3:31 am IST
In a nation, more diverse than the EU, we have seen that what is good for Chattisgarh is not good for Maharashtra.
GST is being touted as the biggest tax reform in India’s economic history.
 GST is being touted as the biggest tax reform in India’s economic history.

GST is being touted as the biggest tax reform in India’s economic history, but personally I believe it is the most terrible thing to happen in the country. Somebody said you cannot stop an idea whose time has come. But I feel GST is a horrible idea whose time should not have come. And I don't say this to shock people or dramatise something; I say this out of strong personal conviction.

Why do I say that GST is a bad idea? Let’s understand our concepts first. GST is nothing but VAT in most countries. The prime idea is that you don’t levy tax on tax from the raw material to the final output stage and you only pay tax on value addition and avoid the cascading effect of taxes. That is the basic feature of the GST. There is only one basic GST throughout the world, except in Canada and Brazil, which I think have two. Most countries have one GST. In Singapore, for insta-nce, whether you go a bar or buy an electronic item, you just pay seven per cent GST. My fundamental objection to GST is what we are calling GST is not GST.

 

Look at what’s happening now. We have 29 states and so you have 29 VAT, sales tax, service tax, excise duty — that's total of 32. So, what's the status with our GST now? I can understand if you have one GST — one nation, one tax. There would have been no problems with that. But look at what’s going to happen now.  After the 101th amendment to the Constitution, we have Article 246, which says Parliament and the States can levy tax on the supply of goods and services. So, not only Pa-rliament but each state can levy its own GST.

 

So, we are going to have 29 different VAT laws or state GSTs. You are going to have one CGST for inter-state transactions and you are going to have one IGST or inter-GST. So you are going to have 31 laws replacing 32 laws now. How does this simplify life for the citizen?

Article 246 says every state can levy a GST. Now we are a federal structure. Dr Ambedkar said the essence of our Constitution is partition between the law-making power given to the Parliament and law-making power given to the state. The Supreme Court has said state governments are not appendages of the Parliament. On December 11, 2016, the court’s judgment in the entry tax case says that every state is as sovereign as Parliament in its power to levy taxes. So there is nothing that stops a state from going on its own path.
Article 279A introdu-ces GST Council, whose power is only recommendatory. So, today there is nothing to stop a maverick state government from going on a different path or at least distorting the entire GST system.

 

Now apart from this horribly complex structure, I am quite amazed at the debate which says GST is panacea for all evils and that it is going to increase GDP by two per cent. What is the basis of these claims? I personally believe the existing system is good. The problem is not with the law but with its implementation and leakages in the system. I am just reading eminent economist Dr Vijay Joshi's book, India's Long Road: the Search for Prosperity. Dealing with GST, he says, “It would at last make the country a single market, which at present it is manifestly not; and large benefits could be expected from such a cha-nge over time. Unfortunately, the politics of all this is not straightforward. A grand bargain between the Centre and the states is necessary to pass the requisite Const-itutional amendment. The result promises to be a messy compromise, with too many tax rates and too many exemptions. If this is what happens, a huge opportunity will have been squandered, and the GST will become just a name-changer, not a game-changer.”

 

In a federal nation, more diverse than the EU, where there are mo-re differences between Jharkhand and Tamil Nadu than between Spain and Portugal, we have seen that what is good for Chattisgarh is not good for Maharash-tra and vice versa. And you want to have one kind of GST putting everyone into the same problem, same situation. So, I think it will lead to more complexity, more uncertainty, and procedure is going to be more difficult and I will make good my submission.

Today, a service provider like a diagnostic centre files two service tax returns in a year. Come September, when this wonderful GST dream comes true, this service provider will have to file three returns a month — on the 10th, 15th and 20th — all online. That would be 36 returns in a year. He also has to file 12 TDS returns, plus one annual return. So, mathematically speaking, a person who is filing two service tax returns will have to file 49 returns. This is no exaggeration, please see the fine print. And if the guy has diagnostic centres in nine states, he will be filing 9x49 returns because each state is autonomous. Just imagine the load on the system as everything must be online.

 

I strongly believe that demonetisation has cau-sed tremendous collateral damage. Now I fear that GST is being implemented in a country, which is not yet ready for it. What is the thres-hold limit? Anybody above Rs 20 lakhs per year comes under GST. What online systems and data support can a service provider at Sholapur or Jaisalmer access for such online operations?

My suggestion would be GST could be tried on trial basis on three manufacturing units, three service sectors and three traders to check out problems and evolve solutions. The other fear I have on GST concerns the enormous potential for tax evasion. A unique feature of GST throughout the world is that there is only one rate of tax in a country. But we are going to have five rates.  Whatever our virtues are, paying taxes is not one of them. The entire economy is basically cash and you can well imagine the magnitude of tax evasion. What happened in a system that levied 110 per cent duty for the manufacturer of shampoo and nil duty on those who made khadigram soap? And there's no duty if the turnover is less than Rs 5 lakhs and it's 110 per cent duty for turnover over Rs 5 lakh and up to Rs 50 lakh. People set up shampoo units at home and showed turnover of only Rs 5 lakh. If you have Rs 20 lakhs as threshold, there will be mushrooming of enterprises.

 

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