SEPTEMBER 30, 2024

By K Srinivasan

GST is a complex tax with a multiplier effect on the tax revenue. If anyone calls it a simple tax, then be sure that it is far from it.

GST is not anything new either. Multiple taxes have a cascading effect is an LKG lesson in economics. Funny thing is Governments all over the world are fond of this and are great contributors to keeping it living in the text- books of economics. Thanks to them.

The federalistic setup of the Indian polity is one of the avowed legacies from the Constitution makers one would think. But unfortunately, the Indian polity thinks it's time to rent the beautiful fabric of which it was made. That is sad indeed. There is little you or I could do anything about it.

Speaking of the newly introduced GST in India which is not new anymore even after eight years of its existence. We like to call it recently introduced, newly introduced and so on. It needs to settle down quickly before it's too late.

A new taxation law made by a bureaucracy calls for a lot of imagination, experience, expertise in the field, foresight, legal and constitutional background and acumen. If one puts this question whether the Indian bureaucracy, had it all or some of it, while making the tax reform, its perhaps woefully "not".

Sorry for saying it. You can see the result of it all over, in its poor functioning over the past seven eight years.

The Indian GST is described as a tectonic reform. I honestly don't quite know what it means. It's a fanciful phrase the handlers wish to call it.

However, the new economic thinking of a nation like India is thought to consist of three key principles:

1. Growth and efficient welfare

2. Ethical wealth creation; and

3. A virtuous cycle for economic development.

Well, all these new principles look a myth I would think!

Let me explain in the words of economic experts what these three golden principles are all about.

Growth in a manner conducive to efficient social welfare - The weight at an income level of Rupee 'y' is equal to the marginal cost of providing Rupee '1' of welfare to individuals earning nearly Rupee 'y'. This is a virtual scenario of the world without distortionary tax, where the cost is Rupee '1'. In other words, when the marginal social benefit = marginal social cost, development is supposed to be socially efficient.

Ethical wealth creation - You can understand how much of it can be true of the new tax, in practice. This is again a text-book situation, I should think.

Virtuous cycle - It is a series of economic events that reinforce each other, leading to a continuous process of improvement.

Have a good look at the above and decide what has the tectonic reform of taxation that the handlers of GST wished to christen it, had got to do with the above results.

Someone said GST has the potential to bring about the above three results - but isn't that true of any good, standard tax policy that we have been pursuing subject to successive corrections based on previous years' experience?

What has GST got to do, especially with these results, is little known to me, though!

There's something more than tax there, that meets one's eyes! Be that as it may.

Having said that, even within GST, the reform is unable to materialize one tax rate! Not to speak of achieving one Tax for one Nation.

In a country like India, with wide disparity between the haves and the have-nots, it's impossible to achieve a uniform tax rate, everyone knows this. On this very count, the ideal GST is proved a myth.

Then, there are so many other factors that lead to watering down an ideal GST such as difficulty in bringing under its ambit, Petroleum Products, difficulty in keeping the ITC chain going by giving credit to all inputs. To name only two.

One can add scores of such distortions and discriminations to the list - that will make our GST look like a pitted and pared fruit, in the eyes of the Indian public.

The GST Council has met only 54 times in the last 7/8 years! Can you imagine a set-up created under the Constitution, having no powers to make laws but can only give opinions and advice?

No one is the boss here, they say. Weighted voting powers slightly tilted towards the Centre, doesn't make it look like that. It is meant to sway things the Centre's way, should it want it.

What is good to the States is supposed to be best known to the Centre-type of attitude, if not like the big brother, like the big mother perhaps, should help, is the wide belief.

Unfortunately, States don't seem to have a big think tank, to prop up solutions - so they are toeing the line with the Centre, without much hope of a healthy taxation system, evolving based on regional needs of the States.

GST, to our simple understanding, has a single tax instead of multiple taxes, collected by the federating States and the Centre, in the Indian context. Ok. That's good.

The Government could have always asked the States to follow that by unification of their taxes. Same way, the Centre could have stuck to a unified tax structure.

Why one Tax, one Nation? Especially, when you can't achieve it. Here, there is more than tax to it, that fails to meet one's eyes! One would think.

An electronic reform, supposedly to hit the ground in 2017 and be running, had only hit the ground but not running, is the truth. We are happy, at least that, it had not gone aground! And it is floating. Is all the consolation thankfully, now.

The buyer has the onus to prove that the seller has paid his taxes, to enjoy his ITC. How do you like it? Is he the enforcer or the enforced? I am frankly confused.

The returning process is not turning round the bends but turning round and round, getting fetched up at the same place where it started, carrying a lot of patches, they say they made.

And of course, it walks the taxpayers, with their tax prayers, to the Courts' to only get directions to return straight to the drawing board for justice!

To do course correction on inflation, it is recommended to do more government spending on infrastructure and private spending on personal consumption.

But if the taxation scenario is in pell-mell, how to stimulate growth and development, on the lines recommended by the economists, with distortionary effects of taxation, continuing unabated?

GST looks like pleading with GOD to Save the Nation!

Let's think and act right and act good to save the Nation and our taxpayers from the frostbites and sunburns caused by GST.

[The author was formerly with Indian Revenue Service and is now a senior Associate, RANK Associates, Chennai. The views expressed are strictly personal.]