Last week, Congress vice president Rahul Gandhi created a stir, especially on social media, with his swipe that the goods and services tax (GST) was nothing but a “Gabbar Singh Tax". By drawing a reference to the celluloid bandit Gabbar Singh, immortalized in the cult film Sholay, Gandhi was being anything but subtle in his criticism of India’s marquee tax reform.
In contrast, Prime Minister Narendra Modi, immediately after the GST rollout on 1 July, chose to describe it as the “Good and Simple Tax".
The big question then is that who is right? Unfortunately, there is no binary response, which is what either side would desire. Instead, the truth, as always, lies somewhere in between.
But before that, the ownership of GST and thereby the responsibility/claim implied from either side of the political aisle is misleading; GST is a genuine creation of a federal polity consensus wherein the states and centre have pooled their individual sovereignty to enable it.
Going back to the debate, the rhetoric from Gandhi is understandable (especially after his swipe of a “suit-boot ki sarkar" successfully put the Modi-led National Democratic Alliance on the back foot in its initial years) given that he and his party are in the middle of an electoral campaign in Gujarat, where there is a visible disquiet among traders and small and medium enterprises against GST, disturbed as they are by the rigour and transparency the tax reform has entailed. Sensing a political opportunity, the Congress vice president has made this a key criticism of a regime which has been led for three terms by Modi and been in power in the state since 1995.
At the same time, Prime Minister Modi is right too. GST is India’s biggest piece of tax reform ever and designed, as the PM said, as a good and simple tax. Not only does it economically unify the country—by ensuring the same commodity is taxed similarly across the country—it is a big step in ensuring that India joins a rules-based regime (to add to its credentials as the world’s largest democracy).
Indeed, while it is difficult to separate the politics from the GST debate, there is a need to guard against attempts in some quarters to use this acerbic political exchange to reverse this tax reform initiative. It is, as previously argued in this column, a work in progress; and yes, there are several shortcomings in the manner in which it has been implemented. The GST Council, the apex governing body driving GST and made up of representatives of the centre and states, is seized of the matter and is gradually ironing out the problems.
Part of the problem is that this is a mindset change; something like if you are, after 70 years, asked to change from left-hand driving to right-hand driving, forcing not just habits but vehicles, road signs and so on to be reset. In the case of GST, it is the formalization of the informal sector that is proving to be particularly challenging.
Dipak Gupta, joint managing director, Kotak Mahindra Bank, sums this up best in an interview published in The Economic Times on 25 October.
“The ugly one (part of GST) is the unorganised (sector) because the problem part of GST is that if you have anything to do with the chain and you are not organised, then you are in trouble," he said, before adding, “So why is the ugly category not wanting to be part of the chain? His problem is less of GST. His problem is more of income tax. If I was not disclosing anything, and suddenly you say be part of the chain, I don’t mind. But I have never shown an income of more than Rs2 lakh, so, how will I show my real income of a crore of rupees."
Exactly why first the GST Council and later Prime Minister Modi declared an amnesty of sorts by saying that books prior to 1 July will not be scrutinized. But the message will take a while to trickle down as small business has been spooked.
The good news is that the political face-off between PM Modi and Rahul Gandhi has put a renewed spotlight on the implementation of GST. The downside is that such political scrutiny is risking the country’s marquee tax reform. Presumably, good economics will prevail.
Anil Padmanabhan is executive editor of Mint and writes every week on the intersection of politics and economics.
His Twitter handle is @capitalcalculus.
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