GST good but nitty gritty remains

The July 1 rollout of the “one nation, one tax” GST regime does not seem such a frightening prospect now. The Centre, the states and several stakeholders seem to have thrashed out several issues in fixing the rates for close to 1,400 goods and services although many anomalies remain to be sorted. A single tax subsuming several taxes and levies of different authorities promises a far simpler life for manufacturers, traders and sellers even though our way of taking corrective measures to tackle the incongruities might prove quite exasperating. The major question the GST regime would have to answer is whether the insatiable demands of states for revenue can be fulfilled given the great spirit of give and take that has marked the progress of national decision making thus far in favour of GST which, not without reason, is labelled as the biggest tax reform since Independence. The finance minister is promising a revenue neutral switchover in the new system, but the fact remains that there is much more to be done as the GST is still a work in progress.

Some quixotic aberrations have popped up already like guns attracting lesser tax than hybrid automobiles. While armaments may attract the 28 per cent slab, hybrid vehicles may face a whopping 43 per cent levy including the luxury top-up tax. The four rate bands for services also carry the warning that the road ahead is going to be extremely complicated for certain service industries like telecom and restaurants. The invidious nature of trying to tax Peter for even the bare necessities while sparing Paul is nowhere more apparent than in the restaurant business with different rates for those establishments which provide air-conditioning and those that don’t. It is the underlying philosophy of posing as pro-poor that places this issue in poor light. Taxing telecom at a higher slab could become a burden for everyone in the country including, most of all, the debt-riddled telecom services providers.

The proof of the pudding is in the eating and it remains to be seen how inflationary the single tax system is going to prove. Some crucial decisions regarding exempting milk, fruit and cereals make sense, so too imposing stiff taxes on luxuries like tobacco products. Leaving education and healthcare out of the ambit of GST altogether is good thinking. There is room for optimism even if it must be said now itself that competitive taxing by states cannot be allowed to sneak in on any pretext. Only if the underlying principle of federalism works will GST be the elixir that can drive economic growth too. The fear that parts of the services sector, including newspapers that have attracted a five per cent tax on their lifeline of advertisements, are being taxed a bit on the higher side cannot be brushed away, more so since the services sector accounts for more than half of India’s $2 trillion economy.