Beyond GST

Sujoy Banerjee

The Goods and Services Tax (GST) is apparently a more convenient substitute for the plethora of taxes, central and state, under which business, more so the small businesses had to groan. But on a closer look, the GST, inaugurated with a poor copy-cat emulation of August 15, 1947, leaves much to be desired. The trouble that it takes away with one hand it compensates with the other and adds much more.

The GST is neither indispensable for economic progress (even of the capitalist kind), nor a panacea for economic problems. Many, indeed most, capitalist countries, with far higher productivity find per capita real income than India's, do not have such a tax and are not contemplating one either. Of the few who have, Canada (a member of the G-7) was told by the provincial government of British Columbia that it would not be introduced. In the arch-capitalist USA sales taxes are imposed by the federal government on a few items, but also by the states and even the local bodies, for example, the municipalities, on a large spectrum of goods and services, and constitute the mainstay of revenue in both the latter two cases. More significantly, however, federal autonomy extends to direct taxation, as states and local bodies are competent to tax individual and corporate income as per their own rates, exemptions, and deductions.

India is, like the US, a large country, with fiscal, financial, and other differences, real and potential, between states. But the autonomy, needed to address these differences was much less. Now, with the imposition of GST, and consequent abolition of their paltry powers of fixing rates of sales tax/VAT, and excise duties, their dependence on the Centre as regards revenue, shall be total, destroying whatever little economic latitude states had.

For one thing business people, particularly the small fry, have neither been briefed on the particulars, nor given due time to acquire the tools and the skills to deal with the matter. These gaps are creating supply bottlenecks, which in the case of medicines and medical/surgical appliances, could have fatal consequences. Again while rates even in far richer countries are few and in single-digit, India's with rates as high as 15 & 28 betrays the government's sadistic instincts. The unkindest cut, of course, is that even life saving drugs have not been spared from the GST onslaught.

On the trader's side the mandate for 3-monthly and one annual return, all on-line, strain the capacity of small and micro enterprises to breaking point and makes involuntary default inevitable. This, however, has been criminalised with provision for imprisonment. Such savage assault on small businesses, which accounts for a very large part of employment in the non-primary sector, cannot be without deeply destabilising consequences.

With all such sharply negative features, it is ridiculous to assert that the tax was introduced with beneficial intent. Indeed, talk of one country one tax may only be the prelude to a new ominous age, in which it may be discovered that one country should have only one government and not so many in the numerous states. This can be done as GST was done, i.e., by constitutional amendment, repealing the chapters "State Legislature" and "State Executive". (Administrations of states may be put under a new governor, nominated by the Centre.) The needed two-third majority may not be impossible in a subsequent election, held under ultra-nationalist and religious frenzy, and with the opposition in its current state of impotence. If recent electoral outcomes in states and post-poll partisan manipulations are any guide, there may be obliging State legislators too.

If that ever happens, one may have the Nazi maxim of "One People, One State, One Leader" (Ein Volk, Ein Reich, Ein Führer) in a saffron wrap.

Vol. 50, No.11, Sep 17 - 23, 2017