From today same tax rates will be applicable to services and goods regardless of in which part of India they are purchased, excepting the state of Jammu and Kashmir (J&K). J&K which failed to meet the June 30 deadline to pass the necessary bill in its Assembly is expected to do so on 6th July. Earlier, each of India’s 29 states and 7 Union Territories had the power to tax goods and services at their discretion which caused constant problems while transporting goods from one state to another. The transportation suffered delays and extortion by officials manning the check posts. GST allows easy flow of all goods and services across state borders – excluding alcohol, petroleum products and electricity.
Analysts say the move towards GST was initiated by the central govt. as early as 1986 but has taken about 30 years to become a reality. At a special midnight gathering at the Parliament last night (30 June 2017) to rollout the GST, Prime Minister Shri. Modi said the credit for the rollout went to all the governments involved since the beginning. It is perhaps the only occasion in independent India when all the states unitedly accepted such a far-reaching reform through passing an amendment to the Constitution in the Parliament and approving a supporting bill in each State Assembly.
When Shri. Modi’s cabinet initiated steps in December 2014 to amend the Constitution to be followed by getting at least 16 states to pass the supporting bill in their Assemblies, it seemed like an excessively optimistic move because the upper house of the Parliament and majority Assemblies of States and Union Territories of India were under the control of opposition parties. The momentum suffered initial setbacks but once the constitution amendment got passed in the Parliament and the GST Council consisting of finance ministers of all the states was set up in 2016, there was light at the end of the tunnel. The Finance Minister of India, Shri. Arun Jaitely announced in January the GST rollout date as the 1st July 2017. He had to concede ground to take everyone on board resulting in a GST having four different tax rates whereas the norm is usually just 1 or 2, in other countries. It also has the tax rate of 28% which is highest among countries with GST. Just hours before last midnight the GST Council announced a reduction of tax for fertilisers from 12% to 5% and more tinkering is likely as the council is scheduled to meet every month.
What an expert wrote in 2014 seems to hold true: “The India GST case is structured more around efficient tax collection, reduction in corruption, easy inter-state movement of goods, etc.” To achieve these goals the states have consciously sacrificed their power to tax and the centre has agreed to compensate the states for revenue loss, up to 5 years.
GST rollout, like the demonetization of November 2016 could lead to serious difficulties for small businesses, if not for common man, because most of the small businesses have been operating below the tax radar and just 1 % of Indians pay Income Tax. Now, all businesses having an annual turnover of more than Rs. 20 lakhs have to maintain records of transactions, submit forms to govt. and pay taxes. How people as a whole will react to the GST regime remains to be seen. Some analysts have called it a gamble that might make or mar Shri. Modi’s re-election bid in 2019. His Finance Minister’s insistence on bringing more people under tax net through the strict administration of income tax, now combined with the GST regime may lead to more people getting the bitter taste of the Indian financial bureaucracy and has the potential to spread popular disillusionment leading to loss of popularity for Modi government. That would be unfortunate because his government has shown the will to take risks and try big reforms in the country’s governance. Perhaps a more stringent tax administration may be a necessary transitory phase before the idea of governance with minimal taxes, unimaginable now with the defence sector demanding the major part of the national budget, finds acceptance in the national mind. Self-sufficiency in defence production may also be necessary before that happens. Not surprisingly, some of the opposition parties led by the Congress party boycotted the GST rollout function last night.
The Indian media is busy with reports of what became dearer and cheaper in India from today, the day the GST came into force realising the idea of ‘One Nation, One Tax’. While that may be interesting and important they ought to highlight that the historic day was made possible by the unity of all states and union territories for which India of 1.3 billion people with diverse languages and political leanings can be justifiably pleased.