GST ushers in new-look Socialist India

The Goods and Services Tax (GST), the one-nation one-tax system, has promised to usher in a new-look Socialist India with a market of gigantic proportions, leaving several queries unanswered in its wake.

"Can slippers and luxury cars like Mercedes have the same tax?" Arun Jaitley’s question is aimed at the nation’s consciousness, sullied by the increasing economic divide between the filthy rich and the virtuous poor. His attempt is to defend the complex set of slabs of GST. But the move to exempt several daily items like milk, cereals, meat and curd, and vital services like education and healthcare from GST and slash the tax of several other daily-use products like soaps, hair oil and toothpaste to 18%, from the earlier rate of 24-28%, surely brings succour to the poor and the downtrodden.

The multi-slab GST has attempted to bring in a semblance of equality in India. It teaches us that luxury is sin and luxurious items carry a heavy duty.

Revenue secretary Hasmukh Adhia believes the ultimate goal of the government should be to move to a single or dual-rate GST regime. But that is a long dream in a country like India.

Why our rates are one of the highest in the world? Jaitley thinks there is room for reduction in taxes in the long run. But that is a long dream too. It is unviable as long as we have to feed jumbo governments and pay for popular measures and arbitrary demands such as farm-loan waivers. On the flip side, as rupee continues to be volatile, we can’t afford to let the fiscal deficit swell.

Petrol, diesel and alcohol will continue to remain cash cows for the fund-strapped State governments. They are kept out of GST’s purview so that States can milk them and bridge revenue gaps. A couple of months ago, Maharashtra raised tax on petrol twice, making it the most expensive in the country. Now with a huge bill of farm-loan waiver hanging over its head like the Sword of Damocles, it is scouring for options to raise funds.

Will GST lead to widening the tax net? Even when intelligent chartered accountants burn the midnight oil to find loopholes and facilitate ‘tax planning’ on behalf of their rich clients, the transparent online tax system will surely drive many into the tax net. In sectors like gold, the trail of goods purchased and their tax history will bring in transparency. Huge quantities of gold smuggled into India will find it difficult to be mixed with the gold bought through official channels by retailers.

Will GST push India’s economic growth? As of now, it may sound a bit like counting chickens before the eggs are hatched. The government hopes to enhance tax revenues which may, in turn, push up public investments, and rev up the growth engine. But it may be some time away. Moody's has surprised the government with a positive projection that the GST would contribute to productivity gains and higher GDP growth. That’s indeed comforting.

Henceforth, Jaitley and his successors will not need to take a 'break' while presenting Union Budgets. With the entire gamut of indirect taxes having fixed under GST, Budget presentations can be wound up in an hour, at best.