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Adding to the GST Conundrum

Can India’s goods and services tax progress beyond being an election plank?


Since its inception in July 2017, India’s goods and services tax (GST) has encountered over 400 orders and notifications, largely on grounds of complexities of execution. With the 2019 general elections on the horizon, both the Bharatiya Janata Party (BJP) and the Congress in opposition are pledging further modifications. While the BJP government has already rationalised the GST rates to 18% or below for 23 items out of the enlisted 40 broad categories, media reports divulge the Congress’s promise of yet another version of a simpler tax structure with (item-wise) wider coverage and a single rate, GST 2.0, in its 2019 electoral manifesto. But, what remains unclear is whether and how these modifications (executed or promised) will resolve the alleged complications fundamental to the GST. Various questions relating to critical issues, like India’s fiscal federalism, compliance and, above all, the future of unorganised sector businesses or small capital, are still pertinent or unresolved. 

There is nothing novel in tax reforms being used as floorboards for contesting elections. Malaysia’s case in recent times has shown that governments do not hesitate to rollback taxes to douse populist displeasure even when such taxes (read GST) constitute about a fifth of their revenue earnings. One would shudder to think of the costs of “rolling-back” the GST for India. One saving grace of the narcissism of the contending political parties (of being either the “daring” executor or the “innovative” conceptualiser of GST) is that it deters such retraction. But, parallelly, it entails a threat for the federal structure of the state polity.

Gourav Vallabh, the Congress spokesperson on economic affairs, recently commented that constitutional amendments will not be necessary for GST (2.0) as “the GST Council is empowered enough to carry out the amendments needed.” This resonates with a familiar tone of disregard for the statutory provisions of fiscal autonomy of the states, characteristic of the National Democratic Alliance (NDA). In this context, one should not forget that the economic realities and problems across various states are quite diverse. Thus, while Punjab may find it beneficial to bring electricity, real estate, and petroleum within GST’s domain and evolve a common composition scheme for goods and services, it may not be the case elsewhere.

The Congress’s victory in the three assembly elections in the Hindi heartland in 2018 have tilted the power configuration of the GST Council, somewhat against the BJP/NDA. But, a complete overhauling of the GST structure based on this is an over-optimistic promise. Even if the Congress comes to power in 2019, it will still require at least three-fourths majority voting to pass any change at the GST Council, wherein the states will continue playing a crucial role. However, with the state governments’ acceptance of the GST in general, and that too against assurances of compensation from the centre for any loss of revenue, “federalism,” as a deciding factor, has already started waning.

More importantly, this compromise suggests an alternative reality: the uncertainty amongst the politicians and policymakers (read the NDA) themselves regarding the outcomes of the GST. And, the political expedience of denting robust evidences for coaxing the vote bank to bear the brunt of such ambiguity: first, making them pay through the nose in the name of increasing collections during the election-interim years (for example, households having to pay up to ₹32 more per liquefied petroleum gas (LPG) cylinder from July 2017 due to the twin impact of GST and subsidy reduction), then lowering prices in the name of tax “rationalisation” in the wake of an election (reducing LPG prices by ₹120.50 for unsubsidised consumers, and ₹5.90 for subsidised consumers since January 2019), and finally, making poll promises of further “rationalisation” after having made the economy succumb to the burden of compliance for a year and a half. Implementing the GST is indeed an arduous task in a country like India with such a heterogeneous economy and polity. Hence, a process of trial and error is normal. Given this, the NDA’s nerve and effort, should both be commended. But, what about the political intentions driving such experimentations?

Where various governments over the past four decades or so have procrastinated implementing GST-type reforms to not go against the grain of the Indian democracy, the NDA’s (hasty) adoption and propaganda of the GST as a “silver bullet” for (indirect) tax reforms befuddles economic common sense. In fact, many of the projected benefits—for instance, increased collection from the GST, decreased rate of inflation, and increased economic growth—are mutually exclusive by economic logic. More alarming, however, is the BJP’s surreptitious intention of political and economic hegemony behind the NDA’s non-committal persistence for such a “one-size-fits-all” strategy. For example, its lackadaisical assumption of the small firms being small-scale replicas of large firms in terms of their activity structure, has brought the unorganised sector under a disproportionate burden of prohibitive administrative costs, while enabling the organised sector to expand at its expense, by furthering income and employment insecurities.

The validation of a party’s political will rests on its resolve to end uncertainties, and not in creating new puzzles through rhetoric. With the GST being potentially irreversible, political parties (read the NDA-led ruling coalition) might find it expedient to rhetorise it for creating political clientele, notwithstanding the ephemerality of such successes. Whereas, for leveraging the peoples’ agency in the long run, policymakers will need more definitive or holistic approaches inclusive of resolving structural anomalies, identifying appropriate points of taxation or exemptions, simplifying tax rates, etc, but all in parity with the edifice of the country’s democracy.

Updated On : 11th Jan, 2019


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