In 2017, at the stroke of midnight, India was ready to wake up to the light of a tax reform so bold that it was introduced on July 1 on a liberty-sign scale in Parliament. However, the way our Goods and Services Tax has performed so far makes the heraldic contradiction with 1947 even worse than the concept of GST eligibility. And to the extent that our rendezvous with India’s destiny depends on our economic emergence, we cannot underestimate the potential difference GST can make. In terms of jurisdiction, by unifying the country into a single market — a plus for investors and its hard-sell pitch — it achieved a core objective. Given the constraints of politics, this part was admirably hard-won. Today, with its monthly mop-up 1.5 trillion, fiscal worries on GST revenue have finally started to subside; The boom could relieve the state exchequer from the need for cess top-ups. By serving as a piece of value addition rather than sales value, its design got informal units to sign up – drawn up by input credits and inspired by business customers. Most of its switchover problems are now a thing of the past, as technical glitches and administrative blocks have been resolved. Compliance has improved, with geo-tags and biometrics reportedly being trialled for the Centre’s arsenal against tax fraud. The gross GST intake is likely to eventually go above 6.5% of GDP, which is another bright sign. Yet, its progress needs to be mapped, first of all, by its reformist impact on the economy.
As a general idea, the core promise of the GST is what many consider to be the first principle of taxation: simplicity. A single rate charged on all goods and services will not be easy for everyone to understand, this will close all the room for tax variability, which is always a factor in businesses being more state-oriented than market-oriented. is an important factor. By placing tax policy on auto-pilot above lobbies, a simple tax reduces the role of the state in shaping outcomes and promotes the market, which is what we should be aiming for in an economy still mired in legacy. Couldn’t reduce the burden. Regrettably, the perceived need to keep rates ‘progressive’ so that luxury buyers pay more, while in itself a fair call, has pushed the Indian GST down a slippery slope of a kaleidoscopic levy implemented through multiple slabs and definitions. The old logic has become so distorted, with so many changes made, that the GST Council is bogged down by small quirks like inverted input rates across value chains. And then we have input-credit difficulties in many sectors as well as the distorting effect of various exceptions and options. As far as how the GST is actually implemented, exporters, companies with costs spread across states and other large and small taxpayers are still bemoaning the lack of clarity. Obviously, this is anything but simple.
The overarching goal of such reform is a more efficient economy. GST is designed to reduce the overall cost-base by taxing only the value added, thereby relieving us of cost agglomeration as the burden of one commodity moves along the chain of use to another. Credit for tax paid on inputs helps us to specialize, allowing us to outsource better work to others without tax. As Adam Smith illustrated with his pin-factory example, efficiency stems primarily from optimally allocated work. But our post-2017 record on this aspect, like our economy before 1991, has been mixed. While micro-cases of gains on better resource allocation can be cited, the impact of GST on macro variables is far less visible than we expected six years ago. Sure, we have a little stability. But this is also applicable for GST. All told, for this tax to claim history, it needs a reset that is free of distortions.
catch ’em all business News, market news, today’s fresh news events and Breaking News Update on Live Mint. download mint news app To get daily market updates.
UPDATE: July 06, 2023, 12:45 AM IST