GST Has ‘Birth Defects’: Editorials Debate the Good and the Bad

P Chidambaram and Manish Sisodia argue that the new tax regime could shake up the economy – in a bad way.

As the clock struck midnight on 30 June, India became one of the 160 countries to adopt a ‘unified’ tax. Ironically, the much-speculated Goods and Services Tax (GST) is diarchal in nature – with both the state and the central governments laying claim to the tax levied in a predetermined ratio.

Although Prime Minister declared it a “good and simple tax”, economists and members of the Opposition – through dedicated columns in newspapers – expressed concern about the impact of the new tax regime on the economy. From P Chidamabaram to Manish Sisodia, here’s what they had to say.

“One Nation, Multiple Slabs of Taxes”

Sisodia, Delhi’s Deputy Chief Minister and Finance Minister, fears that the GST regime is a "disaster in the making" – much like the demonetisation experiment. In an opinion piece for LiveMint, Sisodia writes that the GST suffers from severe flaws.

Clearly stating that the AAP has ‘supported the GST in principle’, Sisodia says that the steep rate of taxes under the GST is troubling.

...the fact that we are taxing several items, including some commonly used goods, at a steep 28% rate is alarming and defies logic. 

Sisodia also fears that the high tax slab could mean evasion on the part of consumers.

Sisodia’s third concern was around the admitted lack of preparedness on the part of the GST Network (GSTN) to handle the GST roll-out. Citing a Business Standard interview of Navin Kumar, the chairman of GSTN, Sisodia says:

It is not a laughing matter that the chairman has admitted in all seriousness that the GSTN may not have had any time left to even test the back-end systems central to GST’s implementation.  

“A Period of Turbulence”

The man behind the GST reform, P Chidambaram, concedes that the new regime is bound to be associated with a lot of turbulence.

Backtracking to the days when he was the Finance Minister in 2007, he writes in the Indian Express:

I seized the opportunity in 2006 to announce that it was our goal to implement GST by 2010. Delayed by seven years (does the Finance Minister remember who delayed it?), GST came into effect yesterday.

Chidambaram lists five major issues with the design of the GST launched by the NDA government, including the multiple tax slabs and the number of tax returns to be filed, among others.

He also laments the fact that the GST was not given a trial period, and was instead rushed, much like demonetisation.

Insisting on the need for a trial run, he writes that the period could have familiarised the concerned parties, such as the tax officials and businesses, with the procedures involved under the new regime.

Finally, likening the GST to a baby, he welcomes the tax by saying: “It has some birth defects, it must be carefully nurtured, but it is our baby and let me therefore welcome the new baby”.

“Will We Be Better off Now?”

In an Economic Times editorial, famed economist Partha Chatterjee was all praises for the new tax regime. He wrote that the GST was not only a reform in the tax sector, but also for the federal structure of the country.

An important feature of the GST reform is that the states will no longer be able to change their tax rates individually, as it will be fixed by the GST Council. Chatterjee opines that this could have “serious implications” as the states will now have to garner enough revenue to pay for their public goods such as education.

Besides that, citing a study, he argues that higher tax rates could slow growth in an economy.

Saying that the states have agreed to the GST only after the Centre’s promise to compensate them for the losses in revenue for the first five years, he opines that the effective GST rate in the country will remain a mystery.

“Long-Term Benefit Is to Address Short-Term Obstacles”

Comparing the GST roll-out to the call for independence by Nehru in 1947, reputed economist M Govinda Rao in an editorial in The Hindu cautions against over-optimism, which might result in aspirations that could be hard to fulfill.

Highlighting the issues surrounding the reforms, Rao writes that the GST is an open case for classification disputes and lobbying. The requirement for businesses to file 37 returns is an added cause for anxiety.

Indeed, any major tax reform could lead to disruption, and the complexity of the structure and the untested technology platform adds to the fear.

Citing the disruptions caused by the demonetisation fiasco, Rao opines that it will be impossible to predict the amount of discomfort and discontent this new reform could create.

Calling the GST reform a “major tax harmonisation exercise”, Rao hopes that it will make the economy more export-competitive and contribute to speedy growth.

“Bold Beginning, for How Long?”

Though the GST may have made a bold beginning, its current form may not be a “win-win for all” as it claims, writes Rajesh Mahapatra for Hindustan Times.

Beginning with the consumer, Mahapatra says that a higher tax doesn't necessarily imply that one will have to pay more for the goods and services brought.

Also, as GST comes with a cost of compliance, it will be higher for small producers, which is why they are protesting it, he says. However, large-scale producers aren’t complaining, he notes.

They stand to benefit – because, given their scale, the cost compliance is more than offset by productivity gains.

As far as long-term benefits are concerned, the fact that GST has come out with five slabs, apart from cesses, debunks the expectation of fewer slabs.

Citing earlier instances of when the economy had done well under slashed and simplified tax rates, Mahapatra says that the GST is an attempt by the government to make corrections to the “progressive changes” made by the UPA II government, as well as their own first 3 years.

Mahapatra finally urges the GST council to meet as frequently as possible to review the rates so as to push the country on par with developed nations.