Goods Service Tax (GST): Do Critics in India Have Any Sense of Integrity?

Goods Service Tax (GST) is an indirect tax used in India on the supply of goods and services. Online GST Registration is possible if you haven’t already done so.

Politics is the world of those who compromise their values and the good of the people for their own victories.  That is why populist ways win over fundamental reforms.  It is very easy to talk of Lee Kwan Yew of Singapore longingly for Indians.  Quite another to understand what he demanded out of the Singaporeans and how much they detested to get there.  What you see of Singapore is built not just on hard work, but on a lot of ruthless implementation of fundamental changes and patience (sometimes enforced) by the government of the day.

But India is a country of sissies and weaklings.  Its a country of entitled elite.  Who just want things for themselves and want the country to be like Singapore or Dubai, without making the effort to get there or having the integrity which begets those societies.  A group of unscrupulous, juvenile and immature self-annointed critics of every Modi Government policy announce with remarkable chutzpah – “GST is a failure”.  And, they have the less than straight “equality” record – always giving a free pass to the absolutely atrocious performance and ways of Sonia and Rahul Gandhi.  And, why is Goods Service Tax (GST) is a failure?  Because they say:

1. It is so high
2. Bad implementation
3. Not enough preparation
4. Changing it because it was not correct

Doesn’t seem like these smart alecks have ever worked on any complex project which involves people.  Vivek Dehejia, an economist puts the conundrum of implementing GST very well.

“The perfect ought not become the enemy of the good, especially as a less-than-perfect GST which can be improved down the road will be better than our current patchwork quilt of taxes, which prevents India from being stitched into a single market.”

Global Experience of Goods Service Tax (GST)

A rate for any country to replace the different slabs has always been tough.  In fact, it is not a science.  It is an art.  There are two ways – Either you start high and come down on GST rates OR you start low and go up.  The former will be prompted by the public acceptability and the latter by the revenues coming in for the functioning of the economy.

In the former case, where you start high and then come down – there will always be inflationary pressures.

Another aspect encountered and accepted by most of the GST countries lies in the statistic that GST will be inflationary, especially if the effective tax rate is higher than what prevailed before. For instance, Singapore saw a spike in inflation in 1994 when it introduced the GST. That makes it all the more important for administrators to keep tabs on how prices move after imposition of the tax.

Inflation in the wake of GST implementation has always been a given.  But the government, like Canada’s for example, have reduced the rates right after the implementation given the push back.

Contrary to the belief of some ignorant Indians, GST – or its cousin VAT – has been around in some variation for sometime and 160 countries have implemented it in some form.  Some countries have complex structures and rate slabs but many have simplified their tax rates.

Many older VAT regimes (in Europe, Central and South America, and North Africa) are highly complex, characterised by multiple rate structures, high standard rates, and multiple exemptions for social and cultural goods. While they might have standard rates as high as 27% (Hungary), many products are not taxed at the standard rate. Newer regimes, (New Zealand, Singapore, South Africa, Canada, and others) are simpler, and have a single medium/low rate with fewer exemptions.

The rates in some of these countries are not low at all.

Corrupt Critics and their Baking Games

Level of integrity in the critique of GST can be gauged from how it has been vilified specifically on the “anti-profiteering” clauses inbuilt in to India’s GST.  Arun Jaitley, India’s Finance Minister, explains this clause – “There is already an inbuilt mechanism of anti-profiteering clause (to ensure GST benefits are passed on to the consumer). I hope we do not have to use it. It should act as a deterrent”.

Pegged as the most sweeping tax reform exercise the country has ever seen, the ambitious Goods and Services Tax will come into effect in India at the stroke of midnight on June 30. Among the many challenges that the new tax regime, also dubbed as the biggest economic reform witnessed in the country after the liberalization of 1991, is the concern over the new anti-profiteering rules put in place by the government to ensure that businesses pass on the benefits of the GST to consumers.

The new rules have sprung up apprehensions, especially because they entail cancellation of the registration of those businesses or entities which are found in the wrong.

These clauses have been called “draconian” and “half baked”.  Why?  Because they scare the businesses who have been used to corruption led and corruption fed profits.  For such people, it is but obvious that a law – which makes them accountable to the consumer where they cannot indulge in price-gouging will be “half baked”.  Fully baked for them is a law that has ways for corruption baked into it!

Inflation And GST: The long and short (term) of it

Who didn’t know that implementation of GST was fraught with a lot of danger that would surely impact the political capital of the leader who dared to implement it in India.  CNBC writes.

“The GST is arguably one of India’s most significant and ambitious reforms ever attempted,” J.P. Morgan economists said in a note. By replacing a confusing mass of central, state, inter-state and local taxes-among the most common complaints of foreign businesses-the GST is widely expected to transform India into a common market, bringing with it increased efficiency and productivity.

But while the move is a game-changer for investor sentiment and paves the way for other structural reforms, strategists warn it could disrupt consumption and growth, at least in the short-term.

And then there were articles by compromised financial news sites – which showed only short term impact as the real impact of Goods Service Tax (GST).   They obviously have a slanted and skewed view of things, which are not aligned to the overall picture.  Economy is not a one year or even a five year work – it impacts generations if not done right.  A consistent tax regime with a single tax system for a complex country like India is critical if businesses need to have consistent and predictable expansion plans.

Many, though, who knew their taxes, came out and said it like it is – on the overall big picture.

KPMG’s partner wrote the following saying that though in short term GST will be inflationary, but the prices do fall in the long term.

The GST would need the support of the government and the industry to make it a success. It would be critical to ensure that the MSME’s are provided a helping hand for this transition. We would expect a significant number of fine tunings to happen before the GST regime settles down. At the end of it, the economic gains of GST would be worth the transitionary pain.

EY’s Tax partner wrote:

Of course, GST is proven to be an efficient tax collection system despite teething problems in the ¬initial implementation period.

A report by Morgan Stanley stated:

“We believe that implementation of the GST in the near-term could bring some upturn in inflation; however, the impact should be transitory,”

The verdict has been clear across the board from the experts who have information on GST and VAT implementation globally.  It helps!

Entitled Life, Greed and Ignorance

Back in college, a friend of mine whose family ran a business once announced to me – “How I LOVE corruption, buddy!  It helps me to get to the front of every line with only a few rupees.  I shudder what I would have done if everything was done in India honestly”.  My friend was honest.  Most businessmen are not.  They feign nationalism but work every day to undermine India’s economic system!

They are the first ones to shout hoarse on how India is so backward and why India can never become Singapore or Dubai or US.  But ask them to put their money where their mouth is and they end up putting their foot instead!

The corrupt and those who run businesses buoyed by corruption have had too entitled a life in India!  That is about to end.

Narendra Modi is no political novice or foolhardy idiot.  He is in the political game for a long time and knows that whatever he wants to do for India can NOT be done if he is not the Prime Minister anymore.  He does not have the pedigree like that of the Gandhis.  Who can plunder the country off of trillions and yet have no impact on their integrity in Indians who are inherently full of inferiority and self loathing.

Knowing all that, and understanding that the time to repair a roof is when the sun is shining, not when it is raining, Modi gambled with his immense political capital.

One can fight misunderstanding.  But how does one fight a lot of people who are self-loathing and proudly ignorant fools?

A chopper does not need a runway.  A Dreamliner does.  You cannot compare a chopper which flies a few hundred miles with just half a dozen folks to a Dreamliner with hundreds on board for thousands of miles.  If you want to go far, you need a runway to take that flight.

It may seem the wind is working against the plane’s take off, but take off it will.  And then soar!