In the historic novel The Tale of Two Cities, Charles Dickens wrote the following lines: “It was the best of times, it was the worst of times, it was the age of wisdom, it was the age of foolishness, it was the epoch of belief, it was the epoch of incredulity, it was the season of light, it was the season of darkness, it was the spring of hope, it was the winter of despair.”
The recent developments in India have been incredibly similar. India has had many things going its way, reflecting the best of times—a government voted to power with a clear majority, soft oil and commodity prices, low inflation, demography, and an entrepreneurial spirit. At the same time, the government has taken many initiatives to realise its stated objectives of Make in India and the Ease of Doing Business in India. In this context, timely repealing of the archaic indirect tax regime and replacing it with a modern Goods and Services Tax (GST) was critical.
The discussions on GST have been under way for more than a decade. There have been many occasions in the past when it appeared that GST will be ushered in. GST is acknowledged by all to be an important economic legislation to remove distortions and spur growth. However, GST in India has remained a story of so near and yet so far.
The time has come to bring GST into force before everyone despairs. Pegging the Revenue Neutral Rate (RNR) under GST in the range of 15% to 15.5% is a precursor to the economic buoyancy that GST would bring about.
Yet the GST as proposed is not an ideal GST. The sectoral exclusions proposed in the 122nd Constitution Amendment Bill would keep significant tax revenues outside GST. Many state taxes would continue to be levied separately as they are not subsumed in GST. Tax cascading would be removed only partially. Dual GST with dual control is not exactly measuring up to the objective of Ease of Doing Business in India. A band of rates is allowed to states, which would not help in creating a single national market.
Yet a good GST is still possible by implementing common rates across all goods and services in all states. The interface of taxpayers should be with a single agency. CGST and IGST, which are central levies, should be administered under a single registration. The non-creditable 1% additional tax to be assigned to the state of origin should be withdrawn. Concerns of states should be addressed by a commitment to compensate the loss. GST should be simple, not complicated by place of supply rules and valuation guidelines. Sectoral exemptions should be limited.
Threshold exemption limit should be lowered gradually to expand the coverage. The business processes should be business friendly, reflecting a refreshing change from the present. GST should be a trade-facilitation law, not one that inhibits trade.
The author is research member, International Tax Research and Analysis Foundation (ITRAF)
Excerpted from the ITRAF paper Goods and Services Tax (GST): Analysis, Findings and Suggestions by Srinivasan Pagalthivarthi