India can't afford to delay GST anymore
It is part of democratic politics to offer opposition, in and outside Parliament, to the ruling dispensation in order to sustain the competency levels in any democratic process.
Moreover, in a parliamentary system, it is more often a part of the basic political conduct of Opposition parties to resist and oppose government policies merely to register opposition by being in opposition.
This explains the lack of political consensus over the passage of the Goods and Services Tax (GST) Bill. While the Opposition is more concerned with the structure and nature of the GST Bill, it fails to understand that technology and tax administration have a much larger role for the success of GST in India.
The change of guard at the Centre in 2014 changed the mood of the country and also the style of governance at large.
The new government announced a slew of policies and initiatives with an intention to improve the business environment in the country.
However, the slow pace of reforms in India's indirect tax code structure plagued with huge compliance costs and multiplicity of taxes at different rates at different levels adds up to the poor pace of economic growth in India.
The manufacturing sector is of special significance to Prime Minister Narendra Modi's "Make in India" dream, as its success will deliver inclusive growth for India with better quality jobs for our youth, and also promises to make us a global manufacturing hub in the future.
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| GST has been implemented in almost 150 countries making no reason for its delay in India. |
The passage of the GST holds the key for this process of transformation in the Indian economic system. It will lead to a predictable and more uniform indirect tax regime.
Various indicators like GDP growth numbers offer hope for the Indian economy in comparison to previous years.
According to World Bank's projection in early 2016, India is to remain the fastest growing economy in 2016. The report outlined the south Asian region to be a "bright spot" and noted that India's currency and stock markets were largely resilient over the past year, even during bouts of volatility in global financial markets.
The restarting of various stalled projects are expected to jump-start the investment cycle but a delay in the passage of crucial reforms like the GST could possibly effect the government's reform plans.
At this critical juncture, it is also necessary to make a fair assessment of issues around the GST bereft of the compulsions of parliamentary politics.
Interestingly, the GST was first proposed by a panel chaired by Vijay Kelkar that was set up by the Atal Bihari Vajpayee-led NDA government and submitted its report in March 2004.
The proposed GST is a destination-based indirect tax that will be levied on the supply of goods and services, which will subsume the various indirect taxes currently being levied by the Centre and the states, including excise duty, service tax, value added tax (VAT), Central sales tax (CST) and so on.
The proposed GST seeks to transform the current taxation system from a production to a consumption-based model. The proposed uniformity will also add up to increased efficiency and compliance in the Indian indirect tax regime. It will also bring the much-needed uniformity and certainty in tax rates and will reduce administrative costs for businesses and will result in avoidable litigation owing to double taxation.
Across the globe, the GST has been implemented in almost 150 countries making no reason for its delay in India. And interestingly, a recent study by the Tax Force (headed by Vijay Kelkar) has estimated that the GST will provide gains to India's GDP from 0.9 to 1.7 per cent.
Strong GDP growth will improve social sector allocation for India. A study by the National Council of Applied Economic Research (NCAER) had estimated that the roll out of the GST would boost India's GDP growth by one to two per cent.
In today's system, the production of goods is taxed and the rates are high. Moreover, tax on tax adds to the cost build up.
With the GST, overall taxes on goods are likely to come down making them cheaper. Also, it will contribute to India's comparative advantage by removing duplicity at certain tax levels, thereby leading to low cost of production in the Indian domestic market, which in turn would result in Indian goods and services becoming more price-competitive in global markets. This can add to our export value and trade balance sheets.
In spite of these benefits of the GST, there is some opposition over the issue of a revenue-neutral GST rate (RNR), provision for one per cent additional tax for manufacturing states and the role of the GST council.
Based on the study conducted by the National Institute of Public Finance and Policy (NIPFP), RNR was decided at 27 per cent.
The HSBC Global Research report said that assuming GST at 20 per cent, services would see a rise in tax rates while manufactured consumer goods may see a fall.
While the panel led by chief economic adviser to the government of India, Arvind Subramanian, suggested a rate of GST between 17-18 per cent, on the role of the GST council, it only gives its recommendations, which do not have a binding character. Similarly, the purpose of the additional levy is to compensate states for the loss of revenue while moving to the GST.
These are all policy issues and must be kept away from political opposition for the benefit of country. It is necessary that Opposition parties must find common ground with the government over the GST issue in the coming monsoon session of Parliament.
Union finance minister Arun Jaitley said, "My preference will be to do GST through consensus".
It must be kept in mind that despite the passage in Parliament, the successful implementation of the GST demands a robust IT network based on a technology push, digitisation of the tax system, professionally-trained staff and administrative efficiency. Perhaps at this stage, the Opposition which also rules in many states has a much larger role to play in the federal set up than merely opposing what is proposed.