GST: Stage II Structural Economic Reform Gains Ground
While subsidy abolition and trimming has been operative for nearly
two years, starting with the various petroleum products; the GST juggernaut has
begun to move at last, after more than a decade in the works.
And the Modi government will make every effort to see it
into operation by April 1, 2017.
The rates suggested by the GST Council to come, is the
crucial debating point now.
Lesser issues, such as the division of revenues, between
centre and state, and the contours of the grievance redressal mechanism,
notwithstanding.
But overall, it is clear that the tax base will grow, even
as a plethora of indirect taxes are abolished, to be replaced by this one
nation, one tax system.
This is because the entire monitoring of the process, and
working of the tax collection and distribution system, will be online from the
very start, and also be conducted in real-time capturing big data fit for major
data analysis beyond the administration of this one new tax to replace a clutch
of old ones.
It will soon be impossible to purchase a product or service,
or indeed manufacture an item, without the matter coming onto the IT grid,
constructed and purpose-built to suit.
Every value-addition will be recorded, but the
reimbursements for them, for the originators/manufacturers of a product or
service, will come from a final point of sale, when the general sales tax (GST),
will be paid by the purchaser.
This is the true significance of this tax to come, and it is
this single factor that will raise India’s indirect tax collections to
unprecedented levels, as evasion is eliminated.
The tax rates applied may well come down from the present
ones, for many things, particularly of
everyday usage; and this is expected to grow volumes, via additional
consumption, and pump up the GDP rate by up to 2% gradually.
The jury is out on GST’s propensity to stoke inflation, though
some commentators are concerned. On the contrary, lower prices, say, for up to
70% of goods and services used by the poor, may actually have the opposite
effect!
This, even if the remaining 30% become more expensive, than
they are today.
But all this will become clearer once the GST Council has
worked through the whole issue with a fine tooth-comb.
For now, we might agree that most Indians, despite our
million aspirations now, were brought up on socialist shibboleths and a
povertarian mind-set.
So, when our fractious legislature, harmonised its views for
once, we were naturally gob-smacked. Suddenly we can envisage efficiencies that
seemed impossible even weeks ago.
The media has been gushing praise ever since and many
sections of business and industry have been projecting robust growth as an
outcome.
The final amendments, and other tweaks in the draft and
language, reflect a clear national consensus now.
It will therefore be amalgamated with the version passed by
the Lok Sabha in 2015, and voted on afresh. And this, as early as on the 8th
of August.
Thereafter, it will be ratified by 50% of the states, each
via a two-thirds majority, meaning at least 16 out of the 29; followed by the
President’s assent.
The ratification will not pose any difficulties, the NDA
governs 13 states currently, and the entire house, except for the AIADMK, is in
favour.
The final version, was, in any case, unanimously endorsed by
all the finance ministers from the states, including the AIADMK, at a recent
conclave in the capital.
Bearing in mind the challenging deadline, the GST Council
that will frame the operational laws has to be formed, and mandated, very
quickly.
This empowered council, mostly composed of finance ministers
from various states and political parties, will then draft the central (CGST),
and integrated (IGST), bills; inclusive of the actual rates to be charged for
items and services.
The draft laws, being path-breaking and definitive, will, no
doubt, be debated in council, and informally in both houses of parliament, plus
the state assemblies.
But, when they are tabled in parliament thereafter, they
will most probably be qualified, citing parliamentary and constitutional
precedent, as ‘money bills’; and be swiftly voted into law by the Lok Sabha.
The real time consuming task anticipated, will be in the
fixing of the rates to be charged.
Many goods and services may well be grouped together, to
keep the rates as low as possible for
them.
The GST Council is also expected to lower the boom on goods
and services presently taxed too high, in order to promote stymied growth and
competitiveness. But, to remain ‘revenue neutral’ ideally, it might just keep a
few cash cows handy.
Having said that, it is unlikely that the minimum GST will
be, at, or below 18%, being demanded by the Congress and many others.
Given that the states are currently raking in between
25-29%, the attempt will be to make the new provisions work to similar net
yields at lower rates, via broader tax compliance. Though the centre has also
promised to make up shortfalls for the first five years as the system gains
momentum.
And all this, to be completed by November-December 2016!
Other daunting tasks, for which, happily, a lot of the
spade-work has been already done, include the creation of an IT infrastructure
and backbone, the goods and services tax network (GSTN).
Its systems for state, centre, and ‘intermediaries’, its
forms and formats, its testing for glitches and the debugging, all have to be
ready by December 2016.
A formula, for the division of the expected revenue, between
the centre and the states, will be crucial to the nitty gritty and the percentages
finally suggested.
The centre and all the states will indeed have to work
together, without duplicating process, if the GST bus is to go anywhere at all,
let alone run smoothly!
Nearly 100,000 people will have to be trained, an estimated
60,000 of them government employees from the states and centre.
Large exemptions could sink the enterprise. Profiteering on
the benefits without passing them on, could subvert its intent. But threshold,
and top limits, arrived at sensibly, will keep the GST regime healthy.
Of course, IT consultants, outsourced from the various, will
be put in place, for an extended period, during the roll out.
However, since India is known as an IT powerhouse , there is
no need to fear this long delayed flight into modernity.
The entire universe of commercial transaction, from
manufacturers to sellers will now be registered online. Many businesses
therefore, are likely to start this new journey on a fresh slate; jettisoning
their old secret ledgers and stand-alone computing systems. Millions of traders
and service organisations will have to be helped to upgrade.
In the end, complex as it may seem, this is a great reform, and
India is on the threshold of double digit growth for a decade or more as a
consequence.
A virtuous cycle will set in-the GST will catalyse growth in
business, industry, agriculture, infrastructure, services, specialised
manufacturing, and so on.
It is also expected to spur both FII, and FDI investment, as
the world becomes convinced that the Indian economy will only grow stronger
from this point on.
For: Nationalist Online
(1,194 words)
August 5th, 2016
Gautam Mukherjee
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