Misgivings on social media: Will GST be like Demonetisation?

“The rollout of the Goods and Services Tax (GST) will, in a single stroke, convert India into a unified, continent-sized market of 1.3 billion people,” Prime Minister Narendra Modi wrote in an oped for the Wall Street Journal on his visit to the US in the last week of June.

Essentially, the $2.4-trillion economy is making a bold attempt to transform itself by removing internal tariff barriers and collapsing 17 central, state and local body taxes into a single GST.

Corporate and consumer expectations of the tax reform, which some economists say could add between 1 and 2 percentage points to India’s annual growth rate, are high.

Revenue losses will be all over us. Then there is another kind of revenue loss we need to be worried about. The earlier web of excise, customs and sales taxes created a system where huge revenues were foregone by the state, and huge revenues accrued to tax officials at the Centre and in the States. They will do everything in their power to make the simplified system even more complicated. Unfortunately, the clarity of the language required is not there in the regulations framed.

Sports goods industry:

There are other glaring inequities. I will just cite one. The sports goods industry which is mostly located in Jalandhar and Meerut directly employs about half a million persons. The sports goods market in India is valued at US$ 3.6 billion. The market is growing at 35-40 per cent a year. The growth is expected on account of increasing awareness about health and fitness in the country. India also exported sports goods worth around US$ 400 million as compared to US$ 214.95 million in 2012-13. The major items to be exported during 2013-14 included inflatable balls, cricket bats, general exercise equipment, sports nets and protective gears for cricket.

Now consider this. All the sports bodies and their members like players and coaches can directly import sports goods without attracting any customs duty. But India-made-sports-goods will entail payment of a GST of 18%. This will effectively remove any competitive advantage they may have. Goods from Pakistan and other manufacturing centers will flood the Indian market. Is this what Arun Jaitely wants?

Sachin Tendulkar's son will be able to import his cricket kit from England, while a middle class kid from Saharanpur or Ranchi will pay more for the Indian kit. Is this the new equity?

It’s bad enough that luxury cars will attract lower GST and be cheaper while the converse is true for mid-range and small cars. Even worse, environmentally friendly hybrid cars will cost even more. This is clearly indicative of the lack of preparation.

Taxpayers are already complaining about the sheer volume of additional record keeping and number of forms to fill. If these were essential than arrangements should have been made to train and prepare. Such a gigantic reform rollout requires a huge preparation.

The Modi regime is once again trying to do what it did with Demonetisation where it turned a straight forward money exchange scheme into a huge economic hole. But a patently inadequate preparation with all stake holders not being on board on the new steps, will lead to a surfeit of confusion that will slowdown economic recovery. The Modi government seems more intent on political gains for itself than economic gains for the country.

Table Tennis Tables:

It is even worse for manufacturers of Table Tennis tables. As per concessions granted by GST council in their meeting of 19th June under notification 146/94, if Govt.bodies, federations or specific sports persons import tables from China. they have to pay 0% custom duty and 0% IGST. But a local manufacturer supplying to specific sports persons, federations and Govt bodies must charge 28% GST from buyers. Why should anyone manufacture in India? Make in India or Make in Pakistan?

My first brush with the GST:

Around 3.45 pm on Friday, I visited the local Kendriya Bhandar shop for buying monthly provisions. I found the shop’s shutters half-shut. Thinking I had arrived before opening time, I asked the man at the counter at what time he would be opening the shop. He replied that the shop would re-open after a week. I thought I had not heard him properly. Asked him again. This time he was a bit irritated and asked whether I was aware of the GST being rolled out? They were all now busy in putting new rates on labels, he volunteered. My domestic help who was with me looked worried and asked me whether all prices would go up. I assured them it might not be so.

Chartered accountant’s dream:

I was watching a TV show where a CA was elaborating on the provisions of GST. When asked about the multiple rates, he explained that it had been done to take care of the poor people. The goods used by rich people would attract higher tax while the goods used by the poor would attract lower tax. I understand that a rally is also being organised in Delhi to celebrate the launch of GST and apprise people about its advantages.

I will not be surprised if it is projected as a great gift for the poor at the cost of rich crooks like it was done during demonetisation. GST again is being projected as the most effective tool for eliminating ‘Black Money’. Similar hopes were held out at the time of demonetization as well.

States’ capacity to raise revenue:

The GST proposal would further destroy the few methods left to the states to generate revenue, independent of the Centre. Apex corporate bodies are united in opposing all kinds of state government taxes. The revenue loss that the states will incur due to GST needs to be compensated. But the Union government does not want to give this compensation mechanism any permanent constitutional validity.

The long-range design is clear — to homogenise the whole subcontinent for the benefit of big money's mood swings. Stupendous public investments in that fountainhead of 'aspiration' called NCR and dedicated corridors that will rip across people, their livelihood and cultures — the stage is set.

These forces stand against states' rights, linguistic rights, human rights, environmental rights but upholds the 'right' to choose from a large array of consumer goods.