GST — a Monster Baby

It is being touted as a dream come true. The new Goods and Services Tax (GST) the people are being told, is the mother of all taxation reforms. It will catapult India forward.

Every single political party wants a share of the credit for making the dream come true. The Congress claims original authorship. The Bharatiya Janata Party (BJP) spin doctors have already sold it as the shining symbol of Modi-vision. The Trinamool, Samajwadi, the Left and sundry partries of all hues insist that without their support and cooperation, GST would never have become law.

Behind all this apparent optimism and cheer, there is a deep sense of foreboding. As a concept of Indirect Taxation, a uniform pan-India tax rate for every commodity and every service is, without dispute, far better than the present quagmire of tariffs, levies, duties, cesses and surcharges that make India such a terrible place to do business in or even earn a decent livelihood.

But a good idea can turn into a bad nightmare if it is formulated with in-built flaws and is implementated poorly. The devil is in the detail. There are lurking fears, even among those who are trumpeting its virtues the loudest, that the transition to the new GST regime will be extremely painful and over the next two years could even plunge the economy into chaos.

That was why a surreal atmosphere pervaded the Rajya Sabha on Thursday afternoon when the four Bills which spell out how GST would be actually administered were passed without any amendments.

There should have been an air of celebration - History was being made; after 17 long years of politicking, the Dream of turning India into a Common Market of 29 States was finally about to become a reality.

Instead, Congress leaders sat in grim silence as BJP members indulged in some perfunctorily desk-thumping and members from the other Opposition parties looked bewildered and frustrated.

Everyone knew the die has been cast, for better or for worse. All that remains to be done is for the State assemblies to pass their own versions of the game-changing legislation and for the President to rubber stamp his assent. Then, the GST Council, the deliberative body with representatives of the Centre and all the states, has to decide on the rate for major commodities. GST will then be rolled out from July 1.

Everybody knew that the kind of GST that had been given to the people of India was not the kind of ideal GST that had been envisaged. This was a half-baked and emasculated legislation - not likely to achieve the objectives, not a GST for One Nation, One Tax.

As many party leaders themselves highlighted during the debate on the GST Bills, there are numerous in-built contradictions, flaws and grey areas. First of all, it is definitely not a One Market One Rate GST. There are four market rates, a 5 per cent rate, a 12 per cent rate, an 18 per cent rate and a 25 per cent rate. The whole purpose of one market one rate was to enable ease of doing business, not make people cease doing business.

Moreover, even though it is being hailed as a wonderful example of what genuine cooperation between the Centre and 29 States can achieve, the truth is that the entire administration will effectively be in the hands and under the control of a private company. The IT backbone of the GST will be run by a private limited company called GST Network, GSTN for short. Only 49% of ownership of this company lies with the government. The remaining 51% is held by private entities including ICICI bank, HDFC bank and the Life Insurance Corporation.

The shocking fact is that all the data of all the transactions all over the country will be in private hands. Data security is at the heart of doing business. There is no provision to safeguard the security of GST data from being misused or sold to competitors. This is linked to the broader aspects of security under the new Aadhaar regime and the drive towards Digital India and Cashless or Less Cash economy.

This is quite a different point from the unanswerable question of how all economic activity in the country, including the informal sectors in towns and villages, will be digitalized and brought on to the electronic transaction platform, which is the basic premise and core philosophy of the new GST law.

Another flaw is the obvious one that the GST is handicapped at its very birth. It excludes petroleum and petroleum products; it excludes electricity; it excludes tobacco and tobacco products; it excludes real estate; it excludes Aviation Turbine Fuel.

In terms of value, it excludes 40 percent of the GDP. This leads to another question that has no answer — what kind of GST is this that 40 percent of the GDP in terms of value is outside the GST system?

The haste with which the tax system in the country is being sought to be replaced by a new mega-tax regime without resolving numerous conflict areas and in-built contradictions gives rise to legitimate misgivings. In a country where citizens are already reeling under the impact of demonetisation and job losses and facing the grim prospect of impending drought this summer, being subjected to the agony of a painful transition to GST could be too much to bear. Merely calling it the mother of all tax reforms does not make it easier to cope with. Especially when it has all the signs of turning into a monster baby.

Vol. 49, No.44, May 7 - 13, 2017