Our sui generis GST

The implementation of GST with effect from today marks the biggest reform step in exactly 26 years — July 2017 is as epochal as the July of 1991 when import controls and the licence raj were abolished. GST has taken 17 years in coming, beginning with former BJP prime minister Atal Bihari Vajpayee setting up an empowered committee under the leadership of former West Bengal finance minister and CPM leader Asim Dasgupta — a canny and statesmanlike move that set the tone for political consensus from the word go. Dasgupta played a key role in giving shape to GST laws as they exist today, preparing concept notes and discussion papers for a decade. In this spirit of cross-party collaboration, it was only natural that discussions in the empowered committee were not thrown off-course by changes in governments at the Centre and the States, or by serious political differences. Reflecting this spirit, the GST Council has been accommodative of requests with respect to rates and fitment of goods and services. Such openness augurs well for ironing out future glitches.

From today, a maze of levies and cesses will be replaced by a single ‘goods and services tax’ for a product or service, broken up into Central and State shares. This change, along with the fact that goods and services now attract same levy across regions, will make sourcing, movement and stocking of goods easier. The omnibus GST rate has by and large been pegged at close to the sum of erstwhile levies, and not lower; this is meant to compensate States for any revenue loss over the next few years. The GST Council should lower rates over time, once the revenue concerns of States are addressed. India has arrived at a sui generis model of GST, in keeping with its socio-economic diversity. States’ reservations over loss of fiscal space have been taken into consideration by keeping alcohol, electricity and petroleum out of the GST net, something which detracts from its efficacy and needs to be addressed in the long run.

However, apprehensions remain. These pertain to the workings of the GST Network and the new rules on filing of returns and claiming input credit. Small businesses need to learn the ropes. The bureaucracy could have done better in its outreach efforts. The Anti-Profiteering Rules should have clearly defined how windfall gain is calculated. Ambiguities will provide scope for harassment by officials. Smoking out the evaders is all very well, but the big idea behind GST is to create a friendly — and not punitive — tax regime, boosting both tax collections and growth.

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