Could GST be the BJP’s self goal?

With the Rajya passing the GST Bill, tax experts have gone into overdrive to decipher for us the intricacies of the various levies applicable on sales of goods and services.

The biggest concern has been loss of revenue to States, particularly the manufacturing States, who have been promised adequate compensation for five years. Maintaining that it was a manufacturing State whose concern of substantial revenue loss had not been adequately addressed, and it “violated the States’ fiscal autonomy”, 13 AIADMK MPs walked out of the Rajya Sabha before the “ayes” had it and the Bill made it through the Upper House.

What is ironic is that the DMK MPs did not join them; after all the two arch rivals cannot be seen on the same side. But one wonders if the DMK MPs present in the house were even aware that a bitter opposition to the GST had come when the DMK was a part of the UPA government in 2009. P Chidambaram, who was finance minister in the UPA government, had in 2005 first proposed the GST; something that the present FM Arun Jaitley acknowledged in the Rajya Sabha last week, with his now famous comment that he did not have the “luxury of being an ex-finance minister”.

An IAS officer from Tamil Nadu recalls how in 2009 when the UPA Government “was trying to rush through a version of the GST which was far worse than the present one, and to which surprisingly the TN government was showing no resistance”, a group of five IAS officers, himself included, “warned the then Chief Minister M Karunanidhi that the State Governments were being reduced to the status of Municipalities, drafted a letter to be sent to Prime Minister Manmohan Singh, and insisted that he mark copies to all CMs.”

Karunanidhi sent the letter as advised by his bureaucrats, and this was the first salvo against GST; it shook the GOI, and prompted Gujarat, MP and other Opposition-ruled States to oppose GST. Pranab Mukherjee, who was finance minister, rushed to Chennai and assured Karunanidhi that TN's concerns will be addressed.

Over the years, some of the concerns raised by States have been addressed. But there is widespread apprehension that GST has more minuses than pluses for a country like India; the rate will be high and the implementation poor. Many feel that what the Tamil Nadu CM raised then holds good even today: “The favourable impacts of the proposed legislation have been exaggerated while its serious drawbacks have been underestimated”, he had written in that letter.

Seven years down the line nothing much has changed. If you cut through the maze and the sugar coating of how the common man will benefit, the emerging picture is not so hunky-dory. As GST is primarily a consumption tax, the first knock every Indian as a consumer will take is on service tax, something that began at a modest 5 per cent, but has been insidiously spreading to more sectors and crept up to a whopping 15 per cent.

Earlier there was talk that the service tax will be less than the GST rate, and gradually it would be increased. This is no longer being mentioned, which means there will be a huge jump in the service tax from 15 to more than 18 per cent. Now it looks that the rate may jump to 22 and even 24 per cent, necessary for the Centre to make good the revenue loss to States for the first five years.

Imagine what a 22-24 per cent service tax will do to your air travel, hotel stay, restaurant bills, insurance premium, phone bills, credit card dues, beauty parlour visits and other services!

The consensus on the street seems to be that GST will benefit the rich –cost of luxury goods that carry a high rate of taxation will come down — and hurt the common man, by bleeding him through the service tax front. The first two years of its implementation is likely to be rather chaotic and only gradually will its positive impact on the economy prevail.

Here is a telling comment from a Whatsapp group referring to the Congress extending support to GST. “Yesterday my tax consultant told me that Congress has been very cunning and timed it perfectly. In the first two or three years of GST implementation, prices will increase and there will be huge compliance costs particularly for the smaller traders and businessmen, the BJP’s main support base. By the time parliamentary polls are held in 2019, Congress hopes, people will be angry and will throw out the NDA government. Could this be the BJP’s self goal?”

Too simplistic, or ominous, depends on which side of the fence you are perched!

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