THE GST SUBLIMATION
Just while I was watching the news last night, the NewsHour debate showed the historic moment for the country which was nothing we could imagine. The GST bill had been finally passed in the Rajya Sabha. The Rajya Shabha or the Upper house the parliament had kept the bill on hold for quite a sometime. The Rajya Sabha has brought about a system of Goods and Services Tax (GST) in India after clearing the constitutional amendment. On the agenda list of Narendra Modi, perhaps this was the most important economies reform on the list of government’s agenda. This reform is going to affect all the class and mass of the people of this country. The GST Bill is the biggest reform in India’s tax structure since the economy started to open up 25 years ago; finally it set to become a reality. The constitution (122nd) Amendment Bill brought this GST Bill in reality.
What exactly is the GST Bill?
The goods and Services Tax Bill or popularly known as the GST bill is officially known as The Constitution Bill, 2014. It made the 122 amendment in the constitution. The bill proposes a national value added tax to be implemented in India from June 2016. GST is a comprehensive indirect tax on manufacture, sale and consumption o goods and services throughout India, the taxes levied by the Central and State governments will be replaced. Goods and services tax would be levied and collected at each stage of sale or purchase of goods or services based on the input tax credit method. This method allows GST-registered businesses to claim tax credit to the value of GST they paid on purchase of goods or services as part of their normal commercial activity. Taxable goods and services are not distinguished from one another and are taxed at a single rate in a supply chain till the goods or services reach the consumer. Administrative responsibility would generally rest with a single authority to levy tax on goods and services. Exports would be zero-rated and imports would be levied the same taxes as domestic goods and services adhering to the destination principle.
The introduction of this bill would be significant step in the reform of indirect taxation in India. The benefit of this taxation policy would mitigate cascading or double taxation, facilitating a common national market, as it will amalgamate the several Central and State taxes into a single tax. The enforceability of this tax will make it easier to administer. As a consumer, the main advantage would be in terms of a reduction in the overall tax burden on goods, which is currently estimated at 25%-30%.
What changes there would be if India launches GST-“The tax rate under GST may be nominal or zero rated for the time being. It has been proposed to insulate the revenues of the States from the impact of GST, with the expectation that in due course, GST will be levied on petroleum and petroleum products,” According to current minister for state for Finance Mr. Jayant Sinha, the government has assured states of compensation for any revenue losses incurred by them from the date of introduction of GST for a period of five years (may be for a period less than 5 years).
Why do we need GST?
We do not have the same global manufacturing and trade opportunity as china had in 1978 therefore we need to evolve differently from China
Harvard professor Ricardo Hausmann suggests that the best predictor of sustained prosperity is “economic complexity” and India’s economically complex economy is a great opening balance for building on domestic consumption growth to reduce poverty. Essentially, instead of the traditional formula of large manufacturing, exports and large enterprises, I think India’s destiny lies in services, domestic consumption and small and medium enterprises.
We all think about individual productivity such as skills and education, moreover we must recognize that the problem of India is not job but wages. The employment rate of our country is 4.2%. Everyone needing has one in their court but with the wages or salary they long for. Many factors go into enterprise productivity but the main one is market access: connecting with buyers.
The main issue is regarding the consumer and producer empowerment. The majority of India’s 00-million-strong transacting consumer do not access to quality products at affordable rates. Many producers are not given entry in the market. Reason being geographical constraints and artificial restrictions by the current tax regime, the quality products become expensive and affordable products suffer from poor quality.
The technology can come to the rescue post GST. The ‘India stack’ framework for transactions is being first applied magnificently to finance but has huge implications for production and consumption once GST is passed. An unintended consequence of implementing the India stack across supply chains will be big data analytics for government that will not only improve compliance but greatly expand formal economic activity and create a virtuous cycle for credit, employment and wage rises.
One of the most remarkable books about India is The Integration of Indian States by V P Menon. It describes wonderfully how the 562 maharajas that administered more than 40% of India’s land and 25% of our population in 1947 were brought into the Indian state by 1951 in a project led by Sardar Patel, which secured the political unity of India. Passing GST will have similar impact on our economic unity. It will be a gift to first-generation entrepreneurs who don’t have connections or money but just the courage of their hearts, the sweat of their brow and the strength of their back.
Soon after the Brexit passing the GST would also signal to the world that India’s economies ambitions have new rocket fuel. India’s regulatory cholesterol has been hostile to small entrepreneurs. GST rights that wrong and makes a new appointment with India’s missed tryst with destiny. This is one that she must keep. Definitely better start. A change somewhere which gives us all relief.
BE THE CHANGE TO SEE THE CHANGE.