What remains to be seen is that whether it will be for the greater good or the cumulative worse
Almost a fortnight ahead of India’s 69th birthday, on 1 July, 2017 the Nation moved a step closer to implementing the world’s most complex unified indirect tax system to replace the world’s most complex and fragmented system of indirect taxation. Goods and Services Tax (GST) touted as the biggest tax reform seen by independent India aims to bind 29 states into a $2 trillion pan-India common market with 1.3 billion consumers.
GST as it has presented itself pretends to be a messiah of Tax Neutrality across the country. It is one indirect tax for the whole nation, which will make India (including the Northeastern regions) one unified common market. GST is a consumption-based tax. This establishes a directly proportional relationship between consumption and revenue collection in a state. The incidence of double taxation will be removed and there will be no cascading effect of multiple levies. Jitendra Singh, Union MoS for DoNER says, ‘GST will offer these (referring to NE states) an opportunity to realize fiscal growth in tandem with the more developed states of India and thus make up for their own shortcomings.’ Now, what remains to be seen is whether the minister’s words ooze unrealistic optimism for a utopian future or lead to a well constructed and calculated plan for holistic development of the region. GST is going to affect each and every one of us and the pertinent question that arises is whether this is going to affect us for good or worse. GST has received mixed reactions from all over the nation.
GST will lead to lower logistical overheads. Being tax neutral, it will eliminate time consuming border tax procedures and toll check posts and encourage supply of goods across inter-state borders, thereby cutting down multiple tax rates imposed by central and state governments. The state will even start getting state GST on import of all goods and services which were earlier outside the ambit of state taxation. This would further act as a catalyst in the implementation of Act East policy. So, we won’t be seeing dual price labels (one for NE states, another for rest of India) for the same consumer product. Goodbye UNJUST DUALITY. Assam is already taking up steps to shut down its depots or sales tax check-gates at inter-state boundaries including the ones at Srirampur and Boxirhat. Accordingly the logistical cost for companies manufacturing bulk good will be reduced. Such costs can be crucial for the survival of MSMEs. This will further support “Make in India” campaign. However, according to Assam’s former Chief Minister Mr. Tarun Gogoi, local industries may suffer because of abolition of entry tax in the GST regime as it would be difficult for them to compete with industries located outside.
‘Tea is highly price sensitive. Any increase in tea prices as a consequence of high GST rate could have adversely affected the sustainability and economic viability of the tea sector,’ said a joint statement issued by the Assam Tea Planters’ Association (ATPA), North-East Tea Association (NETA) and Bharatiya Chah Parishad (BCP). Tea is touted as a common men’s beverage and is the second most consumed beverage in the country after water. More is its popularity in the Northeastern part of the country where two lakh small tea growers of Assam together account for one-third of the total 1, 250 million kg of tea that the country annually produces. Rate of VAT on made tea hovered around 5 to 5.5 per cent across the country with the highest being in Punjab at 6.05 per cent. The decision of the GST council to fix the tax rates on made tea at 5 per cent and exempting unprocessed green leaves from taxes surely comes as a respite to the various tea manufacturers and consumers across the country. GST does promise happy days for the tea industry.
However, India has made its ‘simplified’ tax reform bit complicated. There will now be four different rates for indirect taxes on goods and services: 5%, 12%, 18% and 28% plus a 0% rate for items such as food grains, cereal and fresh milk, and a luxury tax (43% and more) on expensive cars and other high-end consumer items. These rates are the highest in the world. In India, nearly 60% of all goods fall under the 18% or 28% bracket of GST. An additional surcharge will apply to some high-tax products—and the rate of that surcharge could be anywhere from three percent (on personal jets) to 12% (on sodas), 17%, 21%, 61%, 72%, 142%, 160%, 204% or 290% (on pipe tobacco). Complicating matters further, there are significant omissions. VAT and state excise duty on alcoholic liquor for human consumption and VAT on petroleum crude, petrol, diesel, aviation turbine fuel and natural gas, stamp duty on transfer of immovable property, electricity duty, road and passenger tax, toll tax, property tax (real estate) will not be subsumed under the ‘unified’ umbrella of GST (Hypocrisy, eh?). The most notable are alcohol and real estate—two notorious sources of black money. Taking into consideration the current government’s relentless efforts towards curbing it, exclusion of the aforesaid entities seem submissive to the demands of certain groups of tax profiteers. For a reform meant to introduce a single, simple and low tax rate to India, this bewildering maze is quite hilarious. This spaghetti tangle of taxes is an invitation to corruption, bribery and incentivizes lobbyists to move from one tax rate to another as in many instances a single good/service is taxed at different rates. The government’s idea of One India, One Tax is just a contemporary of their idea of “Akkhand Bharat”. None seem to exist in reality.
Assam Chief Minister Mr. Sarbananda Sonowal was of the opinion that there may be some shortfall in the revenue during the initial years of GST till the situation stabilizes. Finance minister Mr. Himanta Biswa Sarma expressed that the state stands to benefit from the GST regime in a consumer state such as Assam and would curb inflation. Assam would get Rs. 300 crore per year in terms of GST compensation for the next five years, courtesy Section 18 of the 101st Constitutional Amendment Act. Assam along with other North Eastern states are going to lose thousands of crores of revenue on account of GST. Assam faces monstrous and mutilating floods every year leading to losses amounting to crores of rupees, the loss of human lives is another matter altogether. In the 2017 Assam floods, an official state figure ranks the damage at an initial estimate of Rs. 2939 crores. The recent release of Rs. 2000 crores by the central government to Assam provides the much needed respite for the flood affected victims.
The exemption threshold for GST is 20 lakhs in general but in Northeastern states it is 10 lakhs. As a result, more number of business enterprises would be incorporated within the GST net. The Northeastern state governments fear that if the threshold exemption limit is kept high, large majority of the taxpayers will be below the threshold limit amounting to very little tax collection. But, will it really provide reasonable incentives for new businesses to take shape in the region? Soaking in the hypocrisy, a business having 12 lakhs turn-over will be exempted in Delhi but taxed in Manipur. This isn’t what the Northeastern region needs at this very hour. Special Economic Advantages and not disadvantages are undeniably the need of the region.
The entrepreneurs of the region are of the opinion that GST is coming with some difficulties in the initial period. However, they believe that GST’s biggest gain will be reduction of tax terrorism. One of the budding entrepreneurs of Assam, Mr. Shyam Kanu Mahanta welcomed GST and regarded it as inevitable for the country and will bring lots of positives in the long run. He stated that once the initial confusion regarding rates are settled in the next one year, Assam as a state is likely to gain more than 1, 000 crores out of GST without imposing tax. However, the aforementioned view isn’t the unflinchingly resonating view of every businessman in the region. They believe that GST has transformed their walk-in-the-park businesses in to a tiring and brain-storming high intensity workout.
The Shivraj Singh Chauhan committee had recommended that funding for the Northeastern states and the hilly states should be primarily on 90:10 basis (90% from the Centre and 10% from the state concerned) for core schemes, and 80:20 for non-core schemes. However, the shutting down of the Nagaon Paper Mill at Jagiroad, Assam, seems contradictory to both the aforementioned funding patterns and the “Make in India” initiative. Is the advent of GST responsible for it? Are those compensations provided to various states for losing revenue under the GST regime responsible for the lack of funds to uninterruptedly run the mill? Is GST to blame for the destruction of livelihoods of the people who were erstwhile working in the mill?
Moreover, under GST, the state revenue is shared by the Centre. This gives the centre to indulge quite proportionately in the state matters. Is GST a threat to the federal structure of the country? Will states be losing their autonomy and sovereignty under the GST regime? Most of this will be evident by the end of this fiscal year. What remains to be seen is that whether it will be for the greater good or the cumulative worse.
It is alleged that the Goods and Services Network, the GST’s formidable technical backbone is a work of haste. Trials are conducted on a regular basis. Reports of repeated system crashes in various Northeastern states have already started circulating. Finance Minister Arun Jaitley hailed both demonetization and the GST as ‘tectonic policy initiatives’ that would lead to ‘growth, competitiveness, indirect tax simplification, and greater transparency.’ Those are laudable objectives. But the step motherly treatment while setting up threshold limits for the Northeastern states, shutting down profitable industries in some regions of Northeast to cope with the compensation for revenue loss under GST, pushing for complete digitalization in areas of inefficient infrastructure, internet facilities isn’t the way to achieve those objectives. It is in these defining things that compel us to think that whether this new initiative is one botched move or just a facile one. However, the government has assured that with time, all the initial apprehensions about GST will fade away. GST will eventually bring about better and efficient business opportunities to all the states. It will be one such initiative inflicting short term pains and developing long term gains. The harmonious acceptance of GST by the masses surely reflects a new beam of hope—hope it is or better economic stability, for booming business opportunities and for a unified nation.
B.A. (Hons) History
Sri Guru Tegh Bahadur Khalsa College
University of Delhi
B.A. (Hons) History
Kirori Mal College
University of Delhi