"Never bend your head. Always hold it high. Look the world
straight in the eye."
—Helen Keller (American,
1880-1968)
Word for the day
Exurb (n)
A small, usually prosperous,
community situated beyond the suburbs of a city.
Malice towards none
Will PM Modi go to Palestine
in next 6months on a state visit?
(a) Yes
(b) No
(c) No need
(d) Does not matter
(e) He should but he won't
(f) He will, but he should
not.
(g) How do I care
First random thought this morning
Bihar Chief Minister has raised
a very valid point. The opposition parties in India are completely
directionless. They are merely reacting negatively to whatever the government (especially
the PM) says or does. They have completely failed in presenting any alternative
agenda before the people of the country.
The socio-political narrative
in India therefore has become spiteful. If some opinions expressed in recent
foreign media reports are any indication, some of this negativity is spilling
beyond borders also. This is unfortunate.
This needs to change; rather
urgently.
Take on GST
It's been four days since the much talked about,
debated, praised, cursed, cheered, resented anticipated and feared tax reform -
Goods and Services Tax (GST) has been implemented in the country.
There are reports from various
cities that some markets have remained shut in protest. But nothing dramatic
has been reported so far. The appearance of fear mongers on TV screens is diminishing.
Despite authoring this historic change, the Congress Party finds itself
standing on the losing side alongside Mamata Banerjee and Communist parties.
Some insignificant parties like Shiv Sena and AAP are talking gibberish, which
perhaps no one understands. The rest of the opposition seems to have quietly
slipped to the government's side.
Frankly, in past four days, I have
not found any change in my Kitchen expense due to GST or otherwise. The so
called pre GST sales are continuing in many shopping malls. All the petty
shopkeepers have quickly learned the changes in billing system and
book-keeping. They expect some glitches in filing returns in August (when first
return filing in GST is due), but nothing alarming.
Many of my readers have asked me
why I have not written on GST, when all sundry seems to be writing and/or
talking about it. I may inform them there are two reasons: (a) I was busy
writing about what I believe would be substantive structural reforms; and (b) I
find the popular narrative on GST totally hypocritical.
The supporters are claiming
virtues that cannot be part of a tax system. The new tax system is being
presented as master stroke of PM Modi, just like the way DeMo was marketed. It
is being termed the biggest tax reform since independence. Whereas the reality
may be that it is an enormous administrative correction in the tax system of
the country. But terming it a structural reform is subject to debate, in my
view.
Those opposing GST sound
ridiculously naive. For example, the argument that a 5% tax on textile will
finish the entire textile trade is preposterous. The basic principle of
indirect taxation is that the incidence of tax is always on the ultimate
consumer of the goods and services. In principle, the manufacturer of goods or
service provider or anyone else in the whole supply chain bear no part of the
indirect tax.
For the benefit of readers who
have sought my views, my take on GST as follows:
(a) GST is an enormous administrative correction in the tax system of
India. The amount of administrative effort that has been put in making this
correction is remarkable. The political will shown by the current leadership in
bringing GST to life is also commendable. Be it expediting completion of GST
Network, evolving political consensus at GST council level, and sticking to 1
July 2017 timeline despite intense lobbying from various pressure groups - the
government showed tremendous determination and resolve.
However, the GST as it has been
implemented, does not changes the basic structure or taxation principles
followed in the country.
There are multiple tax rates,
purportedly determined on the basis of socio-economic strata of the ultimate
consumer. The classification of goods apparently lacks connect with the ground
realities. It is clear that the effort has been to stay close to the status
quo, insofar as the incidence of tax is concerned.
(b) GST will certainly bring about material systemic efficiencies and
savings by eliminating redundancies. The benefits will mostly be shared by the
government, business and consumers, with the government taking the largest pie.
My guess is that the sharing of benefits will occur in the ratio of 60%
(Government) 30% (Businesses) and 10% (Consumers).
(c) The argument of organized sector gaining at the expense of
unorganized sector because of GST is mostly unsubstantiated. I feel, this
process started couple of decades back and became conspicuous a decade back.
GST at best may push the accelerator little harder.
(d) The primary concern of unorganized sector seems to be income tax
not the GST. A large number of small businessmen have so far managed to stay
out of tax net. Even a larger number has been paying only a fraction of the tax
due on their income. With GST coming into effect, they fear, that concealing
income will be an onerous and extremely risky task. The thought of paying full
tax on income is agitating their minds. To make matter worse, there are fears
that payment of full tax henceforth may also subject their past years
transactions to tax scrutiny.
This again to my mind is part of
the process that started few years ago. GST may have just set a deadline on
blatant tax avoidance.
(e) GST, like any major change, would throw up many new business
opportunities also. On a smaller scale accounting and audit services may gain
traction. Business automation products and services may also see significant
acceleration.
But the material opportunity (and
for some threat) may come from the relocation and consolidation of businesses.
The businesses that chose their location purely because of tax arbitrage or
established to take advantage of tax concessions, may shift to better locations
and consolidate. I believe cities and towns closer to ports, major railway
junctions, major manufacturing hubs may see businesses relocating from tax
havens like Baddi (HP), Kashipur (UK) etc.
The regional imbalances and
inequalities may thus rise further. The real estate prices may also rebalance
accordingly. The labor migration may increase. Unfortunately, I have not seen anyone
discussing this as a collateral of GST.
PS: I have been asked by a friend,
who happens to be office bearer of a trade association, to draft a
representation seeking some concession under GST for the Association members.
The primary objective is to make representation and assure the members that the
Association is functional, rather than actually seeking any concession!
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