The Goods and Services Tax Bill or GST Bill, officially known as The Constitution (One Hundred and Twenty-Second Amendment) Bill, 2014, proposes a national Value added Tax. Originally it was intended to become law in June 2016, but that passed due to the usual political acrimony. But now it seems likely to become law very soon. Congress Vice President Rahul Gandhi has had a meeting with senior leaders of the party on how to make a virtue of a necessity. Most of the other parties, which were one with the Congress on stalling the Bill in the Rajya Sabha have now either seen the light or have negotiated happy terms or both. But what is this bill?
The Goods and Services Tax (GST) is intended to be a comprehensive indirect tax on manufacture, sale and consumption of goods and services throughout India, to replace taxes levied by the central and state governments. According to the authorities “GST would be levied and collected at each stage of sale or purchase of goods or services based on the input tax credit method. This method would allow GST-registered businesses to claim tax credit to the value of GST they paid on purchase of goods or services as part of their normal commercial activity.”
It is generally believed that this would be a significant step in the reform of indirect taxation in the country. GST will eliminate the cascading of several central and state taxes with a single uniform national tax. It is expected that this uniformity will eliminate tax disparities and intermediate barriers that make some states more competitive than others in attracting investment. It will more or less eliminate barriers against interstate movement of goods and commerce and eliminate inter-state price differentials.
By this it will create a seamless national market. Many see this as unifying the country. This conception might be a trifle exaggerated, as there are economies such as the USA, which are fragmented by highly individualistic state laws, and who yet grow and prosper severally.
But there is little doubt it will make life easier for the chain of producers involved in the manufacture of every single end product or service. In modern manufacture most goods are outsourced and the manufacturer is usually not much more than an aggregator of supplied parts, components or sub systems. Certainly GST will also eliminate the waste associated with complex record and bookkeeping. The simplicity of the tax should lead to easier administration and enforcement.
Most intermediate taxes are substantially evaded and the complexity of the bookkeeping involved make sit easier to hide evasions. This will be largely reduced, taking the GST Bill close to being a reform in the truest sense. It is expected that the consumer will also benefit by lower incidences of taxation. But some consumers might think otherwise also as the scope for sales tax evasion at the point of purchase also reduces significantly.
Whatever be its likely benefits or otherwise, this bill and the Right to Fair Compensation and Transparency in Land Acquisition, Rehabilitation and Resettlement (Amendment) Bill, 2015, popularly known as Land bill became symbols of the Modi government’s ability to speed reforms. The BJP adopted the GST bill as its own after years of opposing it, fighting for the rights and specific interests of states ruled by it. It stalled the previous governments efforts since 2007 and it was quite apparent that the Congress was more keen to hoist the BJP on its own petard by making it in turn a symbol of the NDA government’s inability to step up reforms.
Every so often the enactment of a policy assumes a certain urgency that makes it seem that it was a magic wand that will banish many of our problems. For most of the time these notions become so because of the spin imparted by protagonists, lobbyists and journalists looking for a star to hitch their wagons on to. Back in the Rajiv Gandhi era, Capt. Amrinder Singh, then a recently elected Congress MP from Punjab lobbied for the entry of Pepsi Cola into India. The argument then advanced was that the bottling of Pepsi would create tens of thousands of new jobs and huge tax revenues. Amrinder further argued that the “promise” of the Pepsi company to source tomato ketchup for its pizza outlets from militancy ravaged Punjab will be a quantum boost to it with lucrative tomato and capsicum farming and the introduction of new food growing and processing technologies.
Pepsi came and soon Coke followed and while people like Sachin Tendulkar, Amitabh Bachchan, Amir Khan and MS Dhoni made many millions Punjab’s farmers were left with little more than hopes. But for a brief period in our life it had become a seemingly vital bridge to cross on the road to national prosperity. At another time it was KFC and McDonald’s. Yet at another time it was FDI in insurance, retail and real estate. More recently it was the Civilian Nuclear Agreement with the USA.
These bridges were often crossed and sometimes the crossing, as in the case of FDI in retail, just got postponed. After the advent of the Modi regime we had the Land Bill and GST Bill assume such dimensions. It was spun as if their passage was a proof of India’s earnestness to “reform.” Some of these litmus tests, usually administered by western media and domestic lobbies with proximity to western commercial interests, have been passed and some haven’t. The Land Bill just got dumped, but acquisition of land either for the common good, or for private enterprise has not become a hindrance. Land was always a state subject and the states are as eager as always for new works. Only now land cannot get expropriated as in Singur or Kalingapatnam and given to businesses or infrastructure for just the promise of economic growth. Acquisition has become fairer and life goes on. The economy didn’t get derailed.
As a matter of fact with or without these our economy has been bounding along quite happily, and neither have the worst fears of business interests opposed to “reform” come true. KFC is still trying to gain a foothold in the fast foods business, just as McDonald’s or Pizza Hut are. The expansion of Pepsi and Coke had resulted in huge revenues for the state as well as the two MNC’s. And collaterally diabetes became an epidemic, creating an entirely new market.
The Civilian Nuclear Bill was passed but not a single paisa of investment has taken place after almost a decade after a similarly acrimonious and fractious period in our political discourse. But neither have the heavens fallen and the gap between supply and demand of electricity has narrowed enough not to cause much worry. The point is that the march of a giant young nation is like then flow of a great and fast flowing river. It just goes around obstacles or pushes over them. India moves at its own pace. But this pace is stepping up and will keep doing so, despite the politicians. The uniqueness of India is that, unlike China, where the people are led, in India the democratic process leads and what will be will be.
August 3, 16