Sure, Mercs and milk can’t have the same rate under GST; but is the ‘Good and Simple Tax’ all that it’s claimed to beIJ
There is no doubt that the Goods and Services Tax brought in a new age of indirect taxes to India. After years in the making, the new tax system ostensibly simplified India’s maze of separate State taxes on a range on items easing inter-State commerce. The old joke that India was an amalgamation of 29 separate tax codes, and thus 29 separate countries, vanished overnight. However, confusion over tax rates, refunds and the inevitable teething issues have meant that the heartburn over GST persists.
When the Prime Minister pointed out that there cannot be a single tax slab for a bottle of milk and a Mercedes car, he inadvertently made a reference to the one industry for which GST rates have brought immense amounts of needless confusion; that is the automotive industry. While the Government is right to promote small, fuel-efficient cars, taxes on passenger vehicles are needlessly confusing and do not, peculiarly enough, encourage fuel efficiency. They leave far too many loopholes and lacunae, with six to eight different rates for cars. In fact, when GST started, rates for cars were simpler and set off a higher demand for more expensive cars but rates were quickly amended upwards and fuel-efficient, emission-friendly hybrids were punished. That, in a nutshell, describes GST’s multiple rate confusion. While Rahul Gandhi has promised one universal rate under GST, that is too simplistic as well. All GST-like systems across the world do impact lower income groups disproportionately and differential rates for essential items and non-essential items will therefor have to be maintained.
In a growing economy with more and more consumers, rates have to be balanced to ensure domestic consumption keeps growing. We cannot risk killing the golden goose. On this front, the Government has been less than successful; for example, by classifying some products like air-conditioners as ‘luxury items’ whereas in a country with a growing middle-class these are far from luxury items. Also, more thought has to be put in to the GST system for cars, where taxes should not be determined solely by size, but as has happened in the West, by emissions as well. This would encourage people to buy more fuel-efficient hybrids and possibly zero-emission vehicles as well, reducing our fuel import bill. Indeed, the GST system has been successful in bringing in thousands of smaller and medium businesses that for years dodged taxes and collections are up even for personal income tax. Combined with the power of artificial intelligence running on the tax departments servers, which can analyse millions of data points in seconds, red flags are being raised on all sorts of anomalies allowing tax officials to act. But, at the same time the Government should understand that delays in GST refunds and the high rate of GST for certain products run the risk of alienating the salaried and trading classes and while it is out promoting social sector schemes. If India is to grow even faster, tax rates have to come down. Sure, milk and Mercs can’t be at the same rate. But that is missing the point about the problems with GST.