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GST - Sushil Modi further sensitises Infosys; EDIT facility for returns to be activated soonGovt sets up Second National Judicial Pay CommissionImpact of Moody's rating upgrade - NHAI projects become less riskyIT infra missing at many Customs stations - CBEC Chairperson asks for speeding up installation of netwrok equipmentsIncome Tax seizes cash to tune of Rs 11 Crore from NSE brokerAustralians support same-sex marriage in national surveyDigital economy to the fore again (See 'TII EDIT')Renewable Energy - Challenge is research in storage technologyICAO Audit finds safety system in placeI-T - Interest received towards late payment following award passed by District Court is taxable income: HCPM reviews performance of key infra projectsCX – Blinds are in nature of curtains and cannot be said to become immovable properties when they are mounted on wall: CESTATGST Administration facing acute manpower shortage at Group 'A' level; About 1900 posts remain vacant against over 5800 posts in CBECJD(U) election symbol - EC verdict out; Nitish faction defeats Sharad Yadav splinter groupSEBI bans Swarnabhumi Agritech India & its Directors for four yearsGST - MRP - additional stickers allowed upto Dec 31, 2017CBDT invites comments of stakeholders for conversion of Indian branches of foreign banks to Indian subsidiary companyMoody's upgrade India's credit rating to Baa2CBDT issues transfer order of 7 DC/ACITsBudget 2018 - MoF invites suggestions from Industry and TradeCommerce Minister to participate in Shanghai Cooperation Organization meetingGST - CBEC clarifies on refund of unutilised ITC of GST paid on inputs by fabric exportersCBDT issues transfer order of 8 Addl / JCITsGST - FICCI steps up demand for inclusion of natural gasRevenue Secretary welcomes Moody’s upgraded rating; GST gets full creditGST receipts - Agency commission to banks - Mumbai office of RBI to settle all claimsTaxability of High Sea Sales under Customs & GST - A detailed analysisSiliguri DRI seizes over 7 kg gold worth Rs 2.3 Crore smuggled from Bhutan & MyanmarCabinet sanctions posts of Chairman & Members of National Anti-Profiteering AuthorityUnion Cabinet extends aid to strengthen infra for judiciaryCBEC notifies new Customs exchange rates effective from November 17, 2017
 
GST roll-out a major milestone, but single market a far cry

JULY 05, 2017

By TIOL Edit Team

"NEW dawn at midnight: GST transforms India into a single market". Similar headlines to GST launch splashed in media ring in similarity with Pandit Jawaharlal Nehru's India's Independence speech –'Tryst with Destiny'.

For Finance Ministry, GST' midnight launch is crowning glory to the 18-year blow hot-blow-cold journey of GST. Its GST logo 'One Country, One Tax One Market' is however, over-simplification of indirect tax reform. Moreover, GST alone can transform the country into one single economic market. The market for factors of production and products is constrained by too many policy and regional bottlenecks.

GST should thus be viewed as first stepping stone to economic integration of India into a single, common market as would be elaborated later in this editorial.

Consider first the ceremonial and historical significance of the launch function.

An official release says: "The Goods and Services Tax came into force at midnight, amid a historic midnight session in the Central Hall of Parliament. President Pranab Mukherjee, Prime Minister Narendra Modi, and Finance Minister Arun Jaitley addressed the gathering, before the President and the Prime Minister pressed a button to mark the launch of GST".

On 14th August 1947, Mr. Nehru had stated in Parliament: "At the stroke of the midnight hour, when the world sleeps, India will awake to life and freedom".

On 30th June 2017, Mr. Modi said: "Just as Sardar Vallabh Bhai Patel unified India by helping several princely states subsume into a common entity, the GST will bring economic unification. If we take into consideration the 29 states, the 7 Union Territories, the 7 taxes of the Centre and the 8 taxes of the states, and several different taxes for different commodities, the number of taxes sum up to a figure of 500! Today all those taxes will be shred off to have ONE NATION, ONE TAX right from Ganganagar to Itanagar and from Leh to Lakshadweep."

He added: "GST is the taxation system of New India; of the Digital India. It is not merely ease of doing business. It is demonstrating way of doing business. GST is not just a tax reform, but it is a landmark step towards economic reforms".

GST has traversed a bumpy political ride ever since it was first mooted by an expert group way back in 1999. Its journey has transformed integration of 15 central & state taxes & related surcharges & cess into complex 7-rates GST plus 'compensation cess' The computation of GST plus differential cess on specified products transforms into many tariff rates. GST is thus hydra-headed tax as compared to simple, three-slabs tariff originally envisaged.

Five cash-minting petroleum products- crude oil, motor spirit (petrol), high speed diesel, natural gas and aviation turbine fuel have been 'temporarily' excluded from GST. So is electricity. The exclusions constitute a very big chunk of gross domestic product.

The exclusion is thus itself tax on energy efficiency of Indian economy. It hamstrings the potential of GST to improve productivity and efficiency of all sectors of economy. GST would remain one-leg tax, from standpoint of efficiency, as long as exclusions persist.

Notwithstanding complexity and lame-duck features of GST, it deserves big applause. This is because half loaf is better than no bread at all amidst fractured polity. After GST implementation stabilizes, GST Council should prepare a road-map for reforming GST.

The Council should prepare timelines for subsuming into GST the central, state and local taxes that have been excluded at present. First reform should be elimination of GST compensation cess as soon as possible.

Let cess be integrated into GST even at the cost of increasing the number of 7 rates from zero % to 28% to say 10 rates 35%, 50% and 60%. Even if the rates are more, there would be simplicity in computation.

As for non-tax factors that impact economic integration of the country, the Inter-State Council should issue a white paper on this as national, regional and local hindrances are too many.

A few instances would suffice. The country does not provide for free movement and employment of labour, which is vital factor of production and provision of services. Certain States such as Maharashtra reserve a lion's share of the potential jobs of industrial units to domiciled residents. State Governments stipulate jobs reservations on this count in the approval letters that they issue to promoters of proposed industrial units.

These reservations are in addition to caste, religion, gender-based reservations stipulated by the Centre and the States. The labour component of so-called one country, one market is thus highly reservation-skewed.

Certain States follow discriminatory stance on setting up of industries. A notable case is Goa Government's decisions to scrap half a dozen special economic zones (SEZs) in the eighties and put a freeze on SEZs. Goa does not want migrant workers to flock to its territory in search of jobs in SEZs. Hence no SEZ stance.

States have also imposed restrictions on movement of farm commodities and minerals. A notable instance is West Bengal's decision in 2013 to suspend transport of potatoes outside State to bring down potato prices in its territory.

All such instances and decisions that transform India into fragmented market segments for different economic activities should be eliminated to let GST unleash its full potential as driver of inclusive growth, efficiency and productivity across the country.


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