At a time when the central government has still not been able to fully undo the tax-terror unleashed by the UPA, it is not clear why it is bringing in several worrying clauses into the GST statute. And this is at a time when, as Chief Economic Advisor Arvind Subramanian argues in his article in this newspaper today, many can legitimately ask whether, at the current rates of taxation, the proposed GST is even worth it. While the current philosophy behind the rates is to ensure the GST rate is similar to the current rates charged—on excise/service tax plus VAT—as Subramanian points out, the GST will only be a low-tax one if not more than 5-7% of the total goods and services basket get taxed in the 28% slab. This will get decided over the next few weeks in the GST Council.
If this uncertainty over whether the GST will usher in a lower tax regime wasn’t bad enough, the GST Council went and brought in an anti-profiteering law to ensure that any cut in taxes were passed on to the customer. So, if a good pays a 20% excise-cum-VAT right now and this gets reduced to 18% once the GST Council decides on what items will be put in each slab, the 2% difference has to be passed on to the consumer. While this sounds very pro-consumer, since no pricing of goods or services is done just on the basis of a bill of materials, as this newspaper has pointed out earlier, this gives the taxman enormous powers of harassment, never mind that the revenue secretary has told the media the provision will be used sparingly.
And now, the rules out last week have a provision that says evading tax or incorrectly taking an input credit of more than `5 crore will be a cognisable and non-bailable offence. While the idea was, no doubt, to deter would-be evaders, this just gives more powers to the taxman, especially at a time when people need to get used to the complicated GST rules and are likely to make mistakes anyway. More important, under the proposed norms for cognisable offences, the police have the power to arrest without a warrant and start the investigation with or without the permission of a court.
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Ironically, after the court pulled up the taxman for arresting an official of MakeMyTrip without a show-cause notice last year, the department came up with new rules making even a pre-show-cause consultation mandatory—and yet, a few weeks after this change of heart, a draconian rule is being put in place. What is especially odd is that the punishment for evasion is quite steep anyway—up to five years in prison and a fine for tax evasion of more than `5 crore. Given this, if the tax department is confident of proving its case, why give the taxman such extraordinary powers to arrest without bail?
The GST Council may argue that these powers either exist on the statute or will be used sparingly, but it needs to keep in mind that the history of the taxman in recent years is to abuse these powers—and surely the principle behind a revolutionary new tax like GST shouldn’t be merely replicate every current statute? The fact that the central government has sacked as many taxman as it has—and initiated proceedings into others—for tax terrorism is proof of the fact that extra powers are prone to abuse.