Gst criticism

Narendra Modi stated that ushering in of the GST marked a milestone whereby the country was transitioning into “one nation, one market and one tax”. He further argued that GST was “good and simple”, and will help accelerate economic growth, incomes and employment.

While few would dispute about the GST being good, given that it has been implemented by over 140 countries around the world, there are serious doubts about it being simple as implemented in India, and its impact on economic growth, income and employment.

The present GST regime may even aggravate inflation to the detriment of the poor and vulnerable sections including the farming community.

The GST implemented in the country stipulates the levy of five GST rates namely at 0%, 5%, 12%, 18% and 28%.

However, effectively there are more than five GST rates for different commodities in the country. For instance, certain items, such as small, medium and luxury cars, which are in the highest GST tax bracket of 28% will also attract an additional cess ranging from 1 to 15%.

Added to that a window has also been left open for states to levy additional taxes, which was the reason why the film industry in Tamil Nadu went on an agitation to protest the proposal to levy local or entertainment taxes on films in the state.

Critics such as Bibrek Debroy, Member of the Niti Aayog have pointed out that the GST regime implemented in India is not the ideal regime recommended by the 13th Finance Commission based on the National Council of Applied Economic Research (NCAER) model. NCAER in 2009 estimated that moving to the GST can increase India’s growth by 0.9 percentage point to 1.7 percentage point. Professor M Govinda Rao, a leading public finance expert and former member of the 14th Finance Commission notes that multiple rates rob GST of lower administrative, compliance and distortion costs.

The public has always been told that multiple income tax rates encourage tax evasion and lead to higher administrative and compliance costs, which was the justification used to lower and reduce income tax rates and categories in successive budgets presented by our Finance Ministers.

This being so, one doesn’t understand the logic and justification for going in for a GST regime with multiple tax rates, which will also result in lobbying and rent seeking.

Further, the 28% GST rate implemented in the country is the highest among all countries in the world. In the UK, it is around 20%, Australia 10% and in Singapore about 7%. Whether a poorly designed GST regime is preferable to a no-GST regime is debatable.

The GST regime is not simple and quite confusing in many respects to businesses and the public.

Take the case of mobile phones, where the handset is taxed at 12%, earphones at 18% and the charger at 28% under the GST.

In the case of rolling shutters, where the handle will attract GST of 18% and the inbuilt lock at 12%.

Similarly, while personal computers and printers will be charged GST at 18%, monitors and projectors attract GST of 28%.

Ideally, the bills issued to purchasers should demarcate between these two sets of commodities and charge GST on the items which attract different slabs of GST. This gives ample scope for traders and hoteliers to cheat consumers.

Note: Rent seeking is the practice of manipulating public policy or economic conditions as a strategy for increasing profits.

Who are in demand since GST?

Business establishments in Punjab have started looking out for accountants to resolve the confusion prevailing in the markets. However, they are finding it hard to locate qualified persons as the demand has shot up manifold in the last few days.

With GST in place, the number of firms under the tax ambit has increased 9-10 times. Now, any business with Rs 20 lakh turnover will fall under tax regime.

“Earlier, business establishments up to Rs 1.50 crore were exempted from the tax ambit but now those up to Rs 20 lakh are under the tax ambit and those who were not familiar with the tax system are in urgent need of accountants to deal with the complicated tax system,” said a wholesale merchant in Mandi Fenton Ganj, which is one of the largest wholesale market of All Kirana and dry fruit items, adding that everyone cannot afford to hire chartered accountants (CAs).

“Though seminars are being conducted for wholesalers and retailers by various forums but still traders are not able to understand it completely,” said Raj Kumar, president of Kirana Merchant Association Mandi Fenton Ganj.

He added that several government officials have still not able to clear the the questions pertaining to GST. “No one knows how much time it will take to bring things to normal, but we need accountants urgently,” he added.

A senior official of Jalandhar Sports market association said that though workshops are being organised educate traders but still there is a need for accountants.

“We have been organising workshops to educate the traders but still there is a need for accountants to cope up with the initial pressure and confusion,” said Ravinder Dhir, a senior official of Jalandhar Sports market association.

Puneet Oberoi, a CA and who had delivered hundreds of lectures on GST across the state, said that not only there is confusion, but markets are also moving very slowly.

“There is 10-fold increase of traders and businesses under tax regime post GST in Jalandhar itself,” he said, adding, “In India there is no such institution that prepares qualified accountants.”