20 Jul 2017

Trial-and-Error Taxation Causes Costly Consequences - A Cess That Cost Rs. 50,000 Crore

Raman Swamy

Students appearing for competitive exams like CAT, MAT, XAT and NMAT are often encouraged to find quick solutions of quadratic equations by the ‘Trial and Error’ method. Coaching class tutors tell them - Make a guess, try something, if it does not work, guess again. After some time your guesses will become more educated, you will make fewer errors and you will require fewer trials to arrive at the correct solution.
However, what is good for students trying to grasp the basic concepts of algebra, geometry and trigonometry can be quite disastrous for Governments in power entrusted with the task of formulating policy in a complex market economy. 
GST is not CAT, MAT, XAT. There is no justification for adopting a Trial and Error strategy when forcibly enforcing a new tax regime on a marketplace where a billion people carry out ten billion transactions every single day. 
Every wrong guess will have consequences. Every error will be costly and painful for citizens and businesses.
On Tuesday, the Government’s trial-and-error method of implementing the new GST rates had a consequence. Investors lost Rs. 50,000 crore in trade in ITC, the premier blue-chip conglomerate -- all because the GST Council suddenly imposed a new Cess on cigarettes. 
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