Chidambaram: Modi Govt’s GST so flawed that GST has become a bad word

The Goods and Services Tax (GST) completed one year yesterday.

The Congress Party is happy that the idea that was first proposed by the UPA government in 2006 has become a reality. We are also relieved that the Bharatiya Janata Party, which stridently opposed the idea for five years and obstructed the passage of the Bills, changed its patently wrong view and adopted the idea of GST.

Unfortunately, the story did not end happily. I had written this “government did bad things in a big way (demonetisation) or big things in a bad way (GST).”

The design, structure, infrastructure backbone, rate or rates and implementation of GST were so flawed that GST has become a bad word among business persons, traders, exporters and common citizens. The only section that appears to be happy about the GST is the tax administration that has acquired extraordinary powers that frighten the average business person and the common citizen.

Beginning with the GST Constitution Amendment Bill, every step taken by the BJP government with regard to GST was deeply flawed. The GST Bills ignored the advice of the Chief Economic Adviser on many aspects of GST, notably on the rates.

The net result is that what we have today is a very different animal and not a true GST.

Multiple rates going upto 40%, and arbitrary cesses on top of the rates, have completely distorted the idea of GST. An intolerable compliance burden has been put on the average business firm, especially on the SMEs, by requiring the assessee to file three returns a month in every State where the assessee carries on business. That means that an all-India business is required to file over 1,000 returns a year! Gross delay in refunds has blocked crucial working capital of firms. It is widely perceived that GST has increased the tax burden of the common citizen; it has certainly not reduced the tax burden as was promised.

Chidambaram: GST was thrust upon an unprepared nation

The truth is that GST was thrust upon an unprepared nation. The tax administrators were untrained. The GST Network (GSTN) was untested. Proof lies in the fact that GSTR Form-2 and GSTR Form-3 have not ben notified even after a year. The system is being run on GSTR Form-1 and the temporary (and perhaps illegal) GSTR Form-3B.

It is an undeniable fact that GST has not yet had a positive impact on economic growth. On the contrary, because of the flawed design and hasty implementation, according to the statement of the Minister of Industry in the Tamil Nadu Legislative Assembly, 50,000 SME units in Tamil Nadu were closed in 2017-18 and 5,00,000 jobs were lost. Multiply that several times for the other industrial hubs in the country.

Let me list the corrective measures that are required to be taken to bring the current tax closer to a true GST:

1. The multiple rates must be reduced immediately to five; and then to three in a short time frame; and finally to a single rate with exemption from tax for the truly merit goods and services. That single rate must not exceed 18%
2. GSTR Form-2 and GSTR Form-3 must be notified forthwith and the temporary (and perhaps illegal) GSTR Form-3B must be withdrawn
3. Only one return must be required to be filed once in a quarter
4. The process of refund must be streamlined and refunds must be expedited, releasing blocked capital
5. Petroleum products and electricity must be brought immediately under GST.
6. The Anti-profiteering Authority is an idea born out of no knowledge of economics or business or markets or competition. It should be scrapped
7. Several amendments to the GST laws that have been suggested must be discussed with the Opposition parties before the start of the Monsoon session and passed in the Monsoon session

So far, Mr Fixits have been at work in reforming GST. Elections in Gujarat and Karnataka pushed a desperate government to make some changes. As the original proponent of GST, the Congress party hopes that the task of thoroughly overhauling GST will be entrusted to experts and persons familiar with the working of business and markets.