If India’s mid-night tryst with GST (Goods & Services Tax) on 30 June -- a la India’s awakening to freedom in the wee hours of 15 August seven decades ago -- is a hype that is necessary is a moot question. Well, the GST is an important tax reform in independent India, but to celebrate it on the same scale as India’s freedom appears to be a travesty. But then some place a premium on ceremony over substance.
What is the substance of our GST? It is supposed to create a ‘one nation, one tax’ system. In reality, it is not. We have created six tax rates, and, still, left several items to the discretion of the states and the Centre. The biggest revenue generating items, such as petroleum and alcohol – that contribute more than 40 percent of the state revenue – are outside the purview of the GST. The states will continue to levy taxes as per their whims.
Why did we then not give up the facade of ‘one nation, one tax’ and follow the Canada example where the standard federal consumption tax is 5 percent and provinces have been given the leeway to decide their taxation rate? Canada proclaims that it is a federation and it gives the states enough leeway to plan out its revenue and expenditure. We may say that the concept of GST stands on its head in Canada, but that has not made Canada any less attractive a market than nations which boast of a perfect GST model.
Or, take the case of the other north American country, the United States of America, the biggest economy of the world. Here is a country, too vast and too federal for our liking, which has refused to implement a one-nation GST or even a comprehensive VAT (value-added tax) regime spanning the country. It has left to each of its 50 states to decide if it would implement a sales tax on goods and services and the rate to be applied to them. This truly federal nation is an envy of the world market. It has shown that the magic wand of ‘one nation, one tax’ is not necessary to transform the economy.
The People’s Republic of China is, of course, a totalitarian country, but it has emerged as a major economic powerhouse today, threatening to displace the US as the biggest economy in the world. China too does not have a comprehensive GST regime. There are two main forms of indirect taxes operational in China – VAT and Consumption Tax. Till April 2016, China also had a business tax (BT) provision that applied to service taxes. It has now been done away with. Though China has a peak VAT rate of 17 percent, the other rates of 3, 6, 11 and 13 percent apply to most of the goods. And there are no surcharges, whatever. Compare this with our GST that we are boasting about: our peak rate is 28 percent and there are huge surcharges over what they call ‘demerit goods’.
Whether it is the top democratic economies or the authoritarian ones, a nation-wide GST has not been a precursor of economic transformation. So the unusual hype over its implementation in our country is uncalled for.
What is further misplaced is the unusual emphasis on the deadline. Yes, the country’s decision-making cannot be laidback, but forcing the pace of the implementation of a new tax regime can turn out to be counter-productive as well.
We must remember that New Zealand, the pioneer of the concept of the GST regime in the world in 1986, laid down every detail of the rules, provisions, penalties before the country and then set aside a two-year period for feedback from the business community and consultation and education of the general public. The New Zealand government continually reviewed and revised its policies in the light of the insights received from the practitioners and the lay citizens. The democratic leaders of New Zealand did not believe in the principle of ‘implement first, change later’ policy.
In a country like New Zealand which introduced a single taxation structure – 10 percent – and minimal exemptions, the GST was rather simple to fathom and administer. Still the government allowed a two-year hiatus before formally implementing it.
Australia, another pioneer of the GST movement, had also set in motion the GST debate for more than a decade. The Asprey report called for a broad-based consumption tax in 1975 on the basis of which the then government, after due diligence, published the Reform of the Australian Tax System Draft White Paper in 1985. The National Taxation Summit made drastic changes in these proposals. After intense nation-wide consultations, the GST regime was finally put in place in 2000. That is how a democratic regime should function.
But we, the biggest democracy in the world, believe only in the wisdom of our public representatives. Most of these representatives would themselves be GST-illiterate but they raised hands in their respective legislatures to endorse a taxation system created in the ivory tower by the bureaucracy.
There was little time for the affected parties or the public at large to be part of the debate. The GST Council was busy till late last month finalising the rate structures and fixing various items to different slabs. In fact, several tinkerings went on even this month, when prominent personalities raised some objections.
Only two days ago, the government made public the anti-profiteering rules that provide for cancellation of registration of any business entity which did not pass on the benefit of lower taxes to the consumers. It is good in intent, but are there built-in provisions to ensure that it does not bring in the spectre of license-permit raj, that it does not become the breeding ground of corruption? There was a need for discussion on this matter.
The government might say that the GST Network is ready to roll out 3.5 billion transactions a month. But the government should have listened to the agony of the business groups that find the network mostly ‘under maintenance’. The chairman of the GST Network Navin Kumar himself said in an interview on Tuesday that there was little time for doing an audit of the Network’s performance and it would be done as the things move in due course.
Is this the way we want to usher in the biggest tax-reform measure and, moreover, put it on the same pedestal as the onset of India’s freedom as a nation?
Updated Date: Jun 23, 2017 13:43 PM