GST was meant to be a simple replacement. Instead, it continues with the bureaucratic paperwork syndrome

The Goods and Services Tax (GST) was supposed to change the system of indirect taxation in India and, in a way, it has. There is no doubt that it has dramatically improved tax compliance in the nation where for better or for worse, far too many people avoided paying tax. However, coupled with the debilitating demonetisation scheme and the fact that GST compliance has dramatically increased paperwork (albeit electronic) for companies large and small, the new system has definitely subdued consumer demand over the past year-and-a-half. While it is true that consumer demand, particularly for high-value items such as motor vehicles, tends to flatline in the year before an election only to dramatically increase in the run-up to the poll, the fact is that GST compliance has made small traders and large companies rather irritatable, not so much about compliance problems, but more due to the array of different rates. Now, before traders start hoping that the GST will be done away with by any future administration, they should know that it is here to stay. Fact is that the implementation of GST has been problematic. The classification of some items as ‘luxury’ and ‘sin’ is also a problem. Cement, for example, is taxed at the highest rate of 28 per cent. This unnecessarily adds to the cost of Government’s infrastructure projects. At the same time, suggestions of a single-rate GST in a nation as large as India, with States having differing fiscal needs, is also an issue. A single rate would be helpful but only when a sensible negative list of items can be drawn up. At the same time, one of the biggest issues currently with GST is the snail’s pace at which tax drawbacks are credited.

Thousands of crores are lying with the Government, creating working capital problems for traders and companies. And there is the problem of differential rates in the same space. Hotel rooms, for example, are taxed at 28 per cent if cost is above Rs 7,500 a night and at 18 per cent below that arbitrary line. Similar are the issues with cars. Whereas the Government can establish tax incentives to reduce carbon emissions by encouraging hybrids and alternative-fuel cars, the rates of taxation on motor vehicles in India is the most confusing. It’s senseless tax legislation. And, much like sales taxes and customs and excise duties before, the Government is using a system of rate cuts to keep vested interests happy. There really needs to be a proper sit-down during the GST Council and a decision to come up with one  Central GST rate that cannot be changed.