Is GST the much Needed Tax Reform or Just a Political Stunt?

Is GST the much Needed Tax Reform or Just a Political Stunt?

There were primarily two big changes being planned in the Indian economy. One of them was demonetization. On November 8, 2016, when the Prime Minister rendered those specific currency notes illegal tender, the entire nation was left puzzled. A bold move to catch hold of black money, this move was hailed by each one of us as a step in the right direction. Whether it fulfilled its aim or not is an entirely different ball game. Hordes of money trashed with the super-rich, wealthy people traced its way back into the bank accounts. Thus, the idea to catch hold of illegal sources was left fruitless, again. The next big thing planned for this year is the Goods and Services Tax (GST).

Now, to look at it objectively, India is in dire need of tax reforms as most of these are archaic and have their roots in the pre-independence era. Hence, GST is a welcome change. I always supported GST primarily for following reasons-

  • One comprehensive tax system to replace indirect taxes on production, sale, and consumption of goods and services makes logical sense as it brings in transparency and increases the efficiency of the system.
  •  It was touted to simplify the Taxation system. As of today, it is difficult for a common man to fathom out the tax structure. Sales Tax, service tax, excise duty, entertainment tax, VAT, entry tax, luxury tax, surcharges etc- all together create an inexplicable maze.
  • Hailed as one of the most significant reforms in the history of modern India, GST is basically an all-encompassing tax regime, subsuming all indirect taxes. Under the current tax system, there are multiple indirect taxes being levied including central excise, service tax, and state level value added tax.

GST is being touted as one progressive tax regime built to simplify the tax structure and expand the tax base. Thus, by encompassing small businesses with a single tax form, the focus is to shift from organized to the unorganized sector. With the dual GST model planned, both the centre and state government will levy GST through a carefully planned control regime.  By taxing the final consumption instead of intermediate goods, we are moving towards an efficient structure which will integrate the economy and encourage compliance from all players.

The impact of GST on the Indian economy is going to be enormous. Several sectors are in its ambit with the potential of impact ranging in all directions. Daily chores including eating out, paying phone bills, buying goods and especially jewellery online are set to get dearer. This is because, in most of these cases, the tax rate is changing from the hitherto average of 18.5% before GST to 20% after GST. Customers currently paid only 2% as tax while buying jewellery, which is bound to increase to 6% from July onwards. In this age of digital transactions and online shopping, e-commerce companies will be required to pay a TDS, there will be a direct hole in the pockets of big players. Given how these so called giants are struggling to save face in the heat of the intense competition prevalent in the market, only the ones with stable business models will survive. Thus, instinctive reaction expected will be a cut on the freebies and discounts offered, making online shopping no more a pleasant experience for us. Another sector which will be hit hard includes the aviation sector. Service charges on airfare ranging from 6-9% is being pumped up to 15-17%. The dreams of flying off to your favourite destination just traveled farther from you.

The situation is not as gloomy as it appears. Multitudes of sectors are garnering attention for the positive impact of GST. Luxuries such as buying a car, television set, movie ticket and processed food is set to get cheaper. With an objective to give a boost to the infrastructure domain, the tax rates on cement is planned to decrease from the current 25% to approximately 18%. This gives the much needed push to the government’s plan of ensuring accommodation for masses.

It is difficult to keep a track of how GST is going to impact individual sector. Even more difficult is to keep a track of the myriad of tax rates being proposed for individual goods. When asked about the details, most of the business owners, shop keepers are left wondering for their fate. Thus, what was originally proposed as a panacea for all tax hazards, complicated structure and difficult forms and norms, has, in the end, turned out to be the same. The simple tax structure no longer remains what it was supposed to be in theory and has in fact panned out to be equally complicated affair,if not more, for all involved. I cannot help but wonder how and when things took such a drastic turn. Last year, it was still hailed as a solution to promote economic efficiency and transparency while easing business for workmen. Now I see these same men haggling to understand this new jargon filled form which is bound to get implemented in no time. It is at times of mercy that we ponder whether it is again an act to gain political mileage? Is this yet another tactic to create news, garner all eyeballs and paint a picture of the ‘ache din‘, while in reality, the system is still complicated, gathers more of political brownie points than lure any economist? The complicated tax structure does, in fact, contain several caveats in the form of exemptions, cesses and multiple rates which belies its true clean form and works to secure political vaults. While Prime Minister, Modi led NDA secured the paparazzi by proposing these country wide changes, this entangled mesh of reforms does nothing to work towards creating any financial value. Changes of such large scale in a country which is still not well equipped with the infrastructure to handle is bound to give jitters, encourage disputes and eventually lead to lobbying and corruption. In its truest form, if at all, a modicum of thought was given to long term growth rather than gaining these short term points, the tax structure would still have been as planned, clear, transparent and uncomplicated.