By Sukumar Mukhopadhyay
Those who criticise the GST too much do not seem to remember how bad the situation was earlier. Look at the rates of duty pre-GST. Central excise rates were 2, 8, 10, 12, 14, 24, 37.5, and 42 percent plus cess. There was one service tax rate, but there were many exemptions. Sales tax rates were numerous, and in each state, they differed. Add to this the central sales tax. And entry tax. Exemptions given by the states and the Centre were different and numbered several hundreds.
Seventeen different rates of duty have now been combined, into the 5, 12, 18 and 28 percent slabs. Still, critics are clamouring. Classification controversies now exist for a choice between the 12 and 18 percent slabs only. Earlier, there was a huge controversy about the taxable event. In central excise, the taxable event was the act of manufacture, while, in sales tax, it was the act of sale, and, in service tax, it was the act of supply of service.
There were several Supreme Court judgments on the taxable event, and it still remained an open issue. With GST, there is only one taxable event, namely, the act of supply of goods and services. The distinction between goods and services was creating the problem, which also has been resolved by merging the two. The concept of manufacture, chronically a recipe for Supreme Court cases, has now been abolished. There was so much controversy that I had written a full book on manufacture under central excise, which needed to be updated with every passing day with new judgments. Marketability was another festering issue, which is no longer there. The amalgamation of 17 rates has brought the advantage of saving on compliance cost. Abolition of entry tax has reduced the turnover time of trucks at state borders.
The percentage gain in time is a matter of speculation, but anecdotal evidence puts it at nearly 30%! The abolition of Central Sales Tax (CST) has enabled manufacturers to get the best quality goods from another state since the extra cost of CST is not there. So, this has created a common market in India. The services sector has benefitted by generalising, and extension of input credit for all goods, which was not there earlier. The huge central excise tariff and the sales tax tariff have been replaced by a slimmer tariff, which can also go with the merger of 12% and 18% into just 16%. The central and state exemptions are common, which is a great advantage for the traders since there were different exemptions earlier. At the theoretical level, a big achievement is cooperative federalism, which was unthinkable earlier.
Evasion has certainly not increased with GST. If there was evasion earlier, just amalgamating the taxes cannot increase the evasion. In this context, the findings of IMF (reported in TOI, February 17) that the potential revenue is 8.2 % of GDP and actual realisation is 5.8% (meaning the collection is lower by 40%) is seems exaggerated. There is no basis of calculation given. This sort of absurd result comes out of the mathematical genius of its constituent members. The lower collection of revenue is probably more due to a fall in production than evasion. To check evasion, there is no need to match every invoice. It can be paired only for suspicious suppliers, who should also be audited thoroughly. A robust audit system and intelligence-based detection is necessary. The system is already there, it just needs to be strengthened.
A few things need to be done. One is to combine the 12 and 18 percent slabs to create a 16 percent one. Then, gradually move items from the 5 percent one into the 16 percent one. Also, move some items from 28 percent to 16 percent. That will ultimately make the rates predominantly 16%. Yet another crying need is to abolish the anti-profit organisation, not a part of GST conceptually but a controlling mechanism—a throwback to the socialistic era of the 1970s. The thing of which our country can be genuinely proud of is that our GST is far better than peers like the Canadian GST. Canada has one central rate of 7%, but additionally, state sales taxes are charged. So, effectively, there are several rates. We have done well by combining the sales tax also. So, three cheers for GST after three years!
The author is Member, Central Board of Excise & Customs (rtd)
Views are personal