By Ashok Kumar and Raj Dixit
GST (Goods and Services Tax) was implemented on the midnight of July 1, 2017 with much fanfare at the extraordinary session of the Parliament without considering the enormous size, massive population of billion people and diverse cultural moorings with different linguistic traditions of vast scale of economic activities spread over 650,000 villages of 30 provinces in the country. We present a common man’s view and what one understands about the GST.
GST was first introduced by France in 1954. France was a homogenous society with only over 42 million population and where largely French is spoken. In the last 50 years, none of the countries of the size and complexities of India has implemented GST.
The GST in India was implemented with a slogan of ‘One Nation, One Tax’. Eventually, it became multi-layered. With different rate of taxes for different products and in different States crashed the hopes of business houses, big and small. This has affected jobs in the unorganised sector. The Director General of Federation of Indian Export Organisation Dr. Ajay Sahay said in Sydney recently that one tax notion is achievable by merging a few slabs but we have changed it to one nation same tax. When asked why the heterogeneity of the country was not considered when implementing GST, he admitted that we have made a mistake and we should have considered this aspect.
“One nation and one tax” notion- proved to be illusive and far from simple. Firstly, it has hardly touched the area of direct taxation. Secondly, it did bring together a set of indirect taxes in a pick and choose manner without making any alterations to the taxes related to tobacco, power sector, petroleum industries. The aforesaid sectors are not only major contributors to the government coffers but also relates mainly to the big business houses and multinational corporations.
Moreover, the multi-level tax options from 5%, 12%, 18% and 28% make the tax compliance more cumbersome and ineffective because of the lack of technological infrastructure and financial literacy in the country. The government had spent thousands of dollars on sending officials to various countries to spread the message regarding the implementation of the GST scheme of the Government of India, however, the government did not do much regarding the education and training of GST tax payers so that its compliance could be made more simple ,effective and efficient. But it’s still far from the “one nation one tax” notion.
Another important aspect is that those industries in the informal sector that earn less than Rs. 20,00,000 are exempted from GST registration but a large number of them depend on the retailers to sell their products. However, the retailers are being deprived of any credit inputs which could be transferred to them when they do the onward sale of the products. Thus, the retailers are discouraged to buy products from the small entrepreneurs such as handicraft industries and others who fail to provide invoice with GST that can be used as a credit input by the retailers.
Now, they have no market and are left with two options: either get registered for GST irrespective of turnover or remain in the market and lose business. It has a direct bearing on the job market and decline in the economic activity of the informal small and marginal sector.
The major service provider that is imparting the professional and technical support in the implementation of electronic transactions is not a government institution but a private company Infosys that itself is struggling to maintain its corporate image. Its employees have been denied visa’s by the United States of America.
The Ministry of Finance, Corporate Affairs, Enforcement Directorate, Finance intelligence unit in the Ministry of Home Affairs are all working under the ambit of Infosys providing sustenance to the struggling company risking the data security of the country. instead of creating at least couple of thousand jobs in the government sector. According to sources, even Infosys was not allowed time to do a trial run and its demand to implement GST in phases had been turned down.
The GST network which is made responsible for undertaking million of transactions of about 8.5 million registered GST tax payers was found to be ineffective for handling data of large magnitude. The GST was implemented after the government spent thousands of dollars on officials learning the basic requirements of GST but when asked any question they said its political and were less inclined to address the concerns of the common people.
The much hype is being associated with a belief that GST is a novel idea which is a myth. GST is a borrowed concept from other countries but its implementation in a heterogeneous country with different businesses is not only bound to create problems but also is antithetical to the nature of Indian polity and its complexity.