GST side-effects

RED tape and tax terrorism are among the reasons that deter foreign investment in India, much of it ending up in stock markets from where an exit is easy. An opportunity for serious tax reform to lift bussineses and the economy has been squandered. Blame it on the Modi government’s tendency to extract more from taxpayers to fund the BJP’s pro-poor politics. It has not shared with consumers the huge profits from oil. The laudable idea, based on the internationally accepted philosophy of “one nation, one tax”, of replacing multiple state and Central taxes with one uniform tax has been smothered with multiple tax slabs, higher-than expected tax rates, capped additionally by a cess. The expected simplification of the tax system has not happened as separate Central and state level GSTs will not let tax headaches go away.

In the hurry to roll out the GST in one go from July the exercise in Srinagar to classify goods and services in various tax brackets shows no logic, rationale or philosophy. Taxes can be used to promote good behaviour or punish bad. Green taxes can check pollution and a stiff tax dose can curb unproductive expenditure. The Srinagar outcome seems to be informed by whims and socialist thinking. It shows a shift from Narendra Modi’s “minimum government” slogan, which implies lower taxes and a freer play of the private sector, to a mai-baap government, requiring heavy taxes for funding protectionist policies. Political parties these days happily offer freebies in return for votes and make the taxpayer foot the bill. Politics of populism has denied honest taxpayers any significant relief in the GST shakeup. Governments refuse voluntary fat shedding.

Given the multiple tax slabs and arbitrary fixing of tax rates, the scope for pick and choose, and corporate favouritism remains. Since tax complexity has been maintained, litigation would not lessen and tax lawyers would thrive as before. Tax evasion is another serious problem the GST is expected to address. It is too early to say whether the GST would make enterprising businessmen, used to working in concert with tax officials to dodge taxes, fall in line.