Passage of GST
The Goods and Services Tax Bill, better known by its acronym GST, adopted by the Rajya Sabha is a significant piece of legislation to bring about a significant tax reform applicable to the whole country. But it is hyperbolic to laud it as an ‘economic miracle’, a ‘panacea for India’s economic ills’ and a ‘magic wand to make everything all right’. It is undeniable that a uniform consumption-based tax structure for the entire country has its merits. But it is far-fetched to hold that the GST in itself will improve the economic conditions of the people. A welcome feature of the GST is that it subsumes different central and state taxes. Another tangible benefit is the way paved by GST for a nationwide common market closing existing loopholes. Again, the limited point is that GST per se cannot make any material difference to the material circumstances of the impoverished multitudes. The GST is to be welcomed if the “goods and services” will cost at least marginally less than they have done till now. We are not quite sure how GST impacts the cost of goods and services. It is a matter of concern that a cap on the GST rate is not specified in the Bill leaving room for the government to raise the taxes as and when it deems it necessary for whatever reason and the finance minister’s phrase, “as low as possible” is far from reassuring. With the obstinate problem of lack of cash as a limiting factor, the GST provides no hope that it can be relied upon to bolster people’s purchasing power. Further, the indirect taxes always pinch the poorer sections of the society more than the affluent sections. Divested of the power to raise taxes, the concept of devolution of power to states becomes a casualty. The euphoria over the GST has not spread contagiously to the poor people. This is because the GST does not substitute radical policy changes needed to mitigate widespread deprivation. A move to regulate and streamline tax levy cannot be exalted to the status of being described as ‘revolutionary’.
G David Milton
Maruthancode, Tamil Nadu
One India one tax
Apropos of the editorial, “One country, one tax!”, (FE, August 4). In its concluding observations, the committee headed by the chief economic adviser Arvind Subramanian on possible tax rates under GST, described the tax as a game-changing reform that would facilitate “Make in India by Making One India”. The passage of the Constitution (One hundred and Twenty-Second Amendment) Bill in the Upper House, where the ruling dispensation is outnumbered by the opposition, is indeed a victory for the Narendra Modi government.It shows that prolonged logjams and obstructionist theatrics of the opposition in Parliament could not stop the government. The Goods and Services Tax is a landmark legislation that can potentially transform the Indian tax structure by subsuming all indirect taxes and unifying the country as a single market. It can not only help improve governance and strengthen tax institutions but also impart buoyancy to the tax base. However, by scrapping the demand for 1% additional tax on the supply of goods and taking upon itself the obligation to compensate states for potential revenue losses for a period of five years, the government has posed the risk of a moral hazard. Also, the Congress’ demand for a judicial appellate body for dispute arbitration arising due to “destination-based” nature of the tax remains unfulfilled. The impact of GST cannot be realised fully unless a robust communication and logistics infrastructure is in place. It is imperative for the government to remove systemic bottlenecks and address the issue of States’ fiscal autonomy for making the implementation of GST successful.