Pip the GST’s pocket-pinch

The way the process and procedures prior to the rollout of the Goods and Services Tax (GST) is wending, the pace of change has seldom been this quick and will probably never again be this slow!

It is more than a decade since the GST was flagged off in a budget speech and after several hiccoughs and somersaults by the original proposer, the Congress, the stalemate was broken with States, including Congress-ruled ones, consenting to a multi-tier GST rate structure on November 4.

Sensible policy wonks instantly cautioned the authorities that this multi-layered rate structure with concomitant classification issues, rent-seeking avenues, and an intricate operational framework would render a one-page GST return a herculean task.

Though this is a far cry from the one-India contour comprising One Indirect Tax, One Rate, and One Registration credo sedulously fashioned by the NDA government in the run-up to the rate decision, the astute Union Finance Minister Arun Jaitley—who is also the Chairman of the GST Council—was able to craft a consensus on half-a-dozen rate structure exemptions.

Jaitley retained the standard rates of 12 per cent and 18 per cent proposed at the Council’s last meeting but tweaked the highest and lowest tax slabs from 26 per cent to 28 per cent and 6 per cent to 5 per cent respectively.

Being the champion and defender of the Centre’s major economic initiatives, it was given to the Chief Economic Adviser, Ministry of Finance, Dr Arvind Subramanian, to disabuse any dread of inflation rearing its head as a sequel to the bewildering rate structure. “I don’t think there is any fear on inflation because 6 per cent goes to five per cent. A few products move from 26 to 28 per cent but many go from 26 per cent to 18 per cent”, he quipped, adding that to safeguard the interest of the poor, half the items in Consumer Price Index (CPI) basket would not be taxed at all.

The reality is not going to be as innocuous, with the hard task of pushing which item goes where to be thrashed out by officials, who will inevitably be subject to all sorts of lobbying from groups. Which means interminable uncertainty to consumers as they go about their purchases.

It is small wonder that no less a body than the Confederation of Indian Industry (CII) pitched for the bulk of goods and services falling within the 18 per cent slab, with only exceptions in the 28 per cent slab.

It goes without saying that the overt corporate lobbying of the sort that the Finance Minister sought to staunch by phasing out exemptions in direct taxes would now begin to haunt him.

There is also the question of coverage of items which stand incomplete under GST coverage—electricity, petroleum products, alcohol, and land and buildings remain outside its ambit.

It is not for nothing that experts contend appositely that the design of the GST could be improved vastly by moving towards more consummate coverage with no loose ends.

The issue of cross-empowerment between Centre and State also remains unresolved, particularly when the tax base is common, the need for crafting trust between them too is crucial. This is particularly necessary now because the states will levy services tax for the first time when there is scant clarity on rates applicable to services!

Fiscal expert Vijay Kelkar has pointed out that with the notification of all sections of the Constitution (101st Amendment) Act on  September 16, 2016, laws pertaining to the levy of excise, service tax and VAT  would no longer be in force and as such the rollout of the GST cannot be delayed beyond mid-September next year.

It is now upto the stakeholders in the system to build trust and ensure that the eventual GST is not pocket-pinching, but the most revenue kitty-friendly tax, as it is made out to be, for the exchequer.

The author is a New Delhi-based economic journalist.