Utter GST and the three letters of the English alphabet are sure to evoke an almost immediate response. From the dourest to the delighted, an ensuing debate is inevitable. This single nationwide Goods and Services Tax that took effect on July 1, 2017 with a promise to make India a common market and subsume a motley array of indirect taxes imposed by the states and the Centre, remains undoubtedly a work in progress.
Six years on and the discussions span from an inability to come up with optimal tax bands to correct the anomalies and inconsistencies in rates and categories to deeper debate on whether at a more fundamental level it is a platform that nurtures or hinders the federal structure of the country.
“GST has been a slow and steady journey for India,” says Arvind Singhal, founder and chairman of Technopak Advisors, a leading management consulting firm, focussed across sectors, manufacturing and services. But by now, given all the data gathered thus far, he feels, we should have at least arrived at the optimal tax bands with clarity on which category of goods should fall in which band. The idea, he says, being to not just aid the revenue collections, but also through reduced costs. stimulate demand in some sectors triggering reworking of demand-supply equations to fuel economic growth. Ask him for an example and he says: “How do we explain equating the rate of 28 per cent GST for both an air conditioner and an SUV (sport-utility vehicle)? Instead, it may be more fruitful to redesign the rates in such a manner that they ensure India emerges as a leading global supply base for air conditioners and automobiles and with an appetite to build global scale of operations. Today, he says, the manufacturing output of these products by companies in China and Japan are several multiples of what Indian companies produce. Also, he reminds: it is known historically that the automobile industry is the single biggest force multiplier in terms of economic activity because multiple industry come into play for automobiles – from steel, rubber, glass to engineering and electronics. What then, he asks, is holding back from cutting the GST rate for this industry from 28 per cent (and in some cases even an additionally surcharge) to a flat 18 per cent and confine the highest rates for perhaps alcohol or cigarettes.
He feels, it is time, “the government should be looking at GST as a powerful tool, not just for revenue generation but also to stimulate economic activity in select sectors.”
It is not as if only a high GST slab is a challenge there are issues even where GST is not imposed. For instance, many in the healthcare sector have been complaining for sometime now that because there is no GST imposed, the hospital entities are also not able to avail of the input credit and are unable to reduce costs. Suneeta Reddy, managing director at the Apollo Hospitals, the go-to leader on finances at Apollo nonetheless feels, “I think GST on the whole is very good but in healthcare when you are rated negative and absorbing all the input costs with no set off, it becomes really difficult and is not level-playing with the others.”
There is another element now: For a hospital room rent above Rs 5000 there is GST to be charged, while Apollo’s Reddy and others in the healthcare sector do feel the government perhaps has the best interests of those who cannot afford and therefore not a concept needing a debate but then do tend to prefer a dialogue on what is reasonable and how that could be arrived at.
A senior professor at a leading IIM (Indian Institute of Management) who did not prefer to be named felt the debate around rates and categories will remain as this is an evolving process and while the concept of GST is good for the industry, it is not quite in sync with federalism. “States today have no say in what they want to tax and this does not allow for the nuances of regions and local priorities this may not be ideal for a very large country and in some sense,” he says, it is akin to having a single tax rate for the entire world.
Seeing the exact opposite with GST, Dr Shamika Ravi, member of the Economic Advisory Council to the Prime Minister and earlier, director of research at Brookings India, says, “the whole idea of GST council is about maintaining the federal structure.” In fact, she argues for a case to replicate such a platform for some other crucial elements. “We need to replicate GST council type entities.” She refers to the FRBM (Fiscal Responsibility & Budget Management) and says, “we need to agree on some basic principles and some basic framework that we cannot reverse. Some core minimal fiscal discipline will have to be adhered to.” This, she feels, is all the more crucial at a time when there are signs of reversals at the state level. For instance, “today, state after state is going back on pension reform (the apparent reference to states like Punjab and Himachal Pradesh).” Also, she sees reason to work towards ensuring administrative efficiency so that there is enough scope for developmental spending by states.
On the rate anomalies and inconsistencies, she feels, “it is a work in progress and theoretically there is an improvement in terms of more streamlining tax slabs, and an important move towards rationalisation and treating the country as one market and not fragmented tax structures.”
To her, there will always be room for improvement for a platform that, she finds as one that led to improved tax collections and ensured better compliance and thus an improvement over the past. The journey ahead could look at getting to uniformity in collections across regions and other mechanisms to address, grievances of the industry by perhaps having a secretariat at the state level and, as she underlines, “through better knowledge sharing.”