India’s Goods and Services Tax (GST) is all set to become a reality from next fiscal, overhauling the country’s intricate cascading or double tax system. It’s one of the major tax reforms in independent India aimed at modernising the Asia’s third largest economy.
GST Constitution Amendment Bill, passed by Parliament and now being ratified by state assemblies, aims to take the taxation system out of the cobweb of central, state and inter-state sales taxes and to bring in an era of a “one nation, one tax” concept.
At least theoretically, it is being argued that India can now hope for a change in its perception of business world that the country is an infamously cumbersome place to do business. The country always had various complicated systems and was notorious for its ‘inspector raj’ and ‘licence raj’, which every government vowed to end during the seven decades of independence. The only difference is that the words are changed to be more politically correct as “ease of doing business” that sounds more soothing than saying that “we are going to end inspector and licence raj”.
Yet, many surveys revealed that shifting to a GST regime would help ease the burdens of double taxation and other distortions caused by the current system besides lowering to the barriers of inter-state commerce. Many see this law as a win-win situation for all the manufacturers, suppliers, retailers and above all the consumers – as things would help bring down prices.
While finance minister Arun Jaitley argues that GST would help convert India into a uniform market, there are experts who argue that its real benefits and possible impact on the economy would be known only after some years may be after four-five years after the new taxation stabilises. There is another view that the size of the boost that the economy may get would be very limited.
But the issue at the core is whether the benefits of lower prices would be passed on to the common man already overburdened due to spiralling inflation and higher cost of living. If that is not going to happen, the so-called positive impacts, like ease of doing business, increasing compliance, raising the GDP rate by 1-2 per cent and growing government tax revenue, will not make any sense to them.
The present understanding is that what the GST will do at a basic level is replace all the indirect taxes that currently exist. The central excise duty, value added tax, service tax, octroi, luxury tax and so on will get substituted with one GST and basic goods are likely to become marginally cheaper. But certain services could become costlier as the service tax, at present 14 per cent, could increase making services more expensive. Which means, anything that falls under the category of a service, other than specifically mentioned exception, could be costlier. That will pinch the middle class. If you eat out often and travel a lot, the bill will be more.
Despite all arguments in favour and against the GST, what ultimately matters is whether it eventually would make life less costly, easier and efficient. Let’s hope for the “Achhe Din”.