One year of GST: It is politics versus economics
GST is injecting an incredible dose of self-belief , making the economy more efficient
On Sunday, the goods and services tax (GST) logged one eventful year. Predictably, while its supporters—the most ardent being the incumbent Bhartiya Janata Party (BJP)-led National Democratic Alliance (NDA)—celebrated the moment, its critics, not surprisingly belonging to some of the opposition parties ranged against the BJP, panned what is India’s most far-reaching tax reform. As always, the truth lies somewhere in between.
It is, as Haseeb Drabu, the former finance minister of Jammu and Kashmir and one of the most indefatigable champions of GST, candidly wrote in a column in Mint last Friday: A work in progress. “There is still a long way to go before ‘one-nation-one-tax’ is achieved in letter and spirit. But there is no denying that one tax, one commodity is already a reality,” he wrote.
Given this broad summation around the milestone, here are some takeaways:
First, it is undoubtedly a remarkable achievement and something to be cherished. Particularly since it is the by-product of a rare political consensus (exactly why it is surprising to hear some of the stakeholders turn on GST on its anniversary; including those who facetiously dubbed it as a “Gabbar Singh Tax”, liking it to the legendary dacoit portrayed in the Bollywood film Sholay from the 1970s). In this credit, should be accorded to Arun Jaitley, who is at present on medical leave, for his stewarding of the GST Council through acrimonious debates; insiders reveal that it was his ability to reach across the divide that ensured consensus has defined every one of the 27 meetings of the council held so far.
GST has laid the basis for a new template for cooperative federalism, in which the states and the centre are stakeholders who can’t move independently of each other. It is a model that could be extended to bring about similar makeover say in the struggling healthcare system in the country.
Further, for the record, in one stroke, the introduction of GST did away with the multitude of taxes and levies (about 40) and subsumed them under a CGST and an SGST—the basis which enabled the introduction of a standard tax rate across the country. Earlier, commodities moved around India like they were transiting through countries instead of states under the same federal union.
Second, critics are right in claiming that the existing GST architecture is flawed. Not just because it has too many slabs (done to balance political and revenue concerns) as well as the fact that the technology platform on which it is based was suspect and needed a lot of mid-course fixing, but because its design premise was based on the idea of preventing evasion. While one can’t quarrel with the idea of anti-evasion—especially given the anecdotal track record of some Indian businesses—it is also a fact that it is rather presumptuous to blame only the tax payer; the ecosystem ensured that there was no other way to conduct business. The flip side of this is that if transparent rules are in place, there is every reason to believe tax payer behaviour will alter favourably.
Third, GST is injecting an incredible dose of self-belief (that India can implement such a complex tax reform), making the economy more efficient and forcing compliance (which naturally accompanies a rules-based order). All of these benefits are intangible and often lost in the cacophony of binary claims posited from either side of the political aisle.
Part of the reason forcing a rethink in business processes is that GST is a consumption-based tax and therefore links the entire supply chain beginning with the producer and culminating in the consumer. For seamless functioning—especially in claiming input tax credit—it requires everyone in the supply chain to be part of the GST framework.
An additional spin-off is that GST has brought about a formalization of the Indian economy—something that has not only impeded productivity growth but also fuelled the growth of a parallel economy.
In the final analysis, it is clear that GST is off to a good start. Like the cliche goes, anything well begun is half done.
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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