Goods & Services Tax (G.S.T.)

A comprehensive and simple G.S.T. regime, which has low rates for essential items, especially food items, is the best way of tax collection.

As Siddarth Singh writes in Open Magazine (17-February-2020) – The Socialist creep in policies – an entitlement approach, has encouraged populist economic leanings to steadily become near irreversible. In 2018 some 500 millionaires left India for better options abroad… where countries vie for such wealth creators. Since then, more are leaving each year.

A properly designed, comprehensive, all inclusive, simple and low (G.S.T.) regime, which is well recognized as a more equitable and effective taxation system. Consumption increases lead to greater entrepreneurship; productivity and hence, greater employment and greater tax revenues.

To declare that a properly structured consumption tax (G.S.T.) is inequitable is to display a clear misunderstanding and bias. In reality, a comprehensive, NO exemption, G.S.T. on all, with three equitable slabs and input set-off for all G.S.T. paid, is the best system.

Hence, keep G.S.T. rates low but make them comprehensive, the tax collected on the volume of small transactions at the bottom of the pyramid total to as much, if not more, than those collected from fewer people at the higher levels.

In reality G.S.T. on all sales and services with an input set off is automatically a very equitable tax on the end Customer and its implementation is self-incentivized. The canon of equity, productivity, simplicity, certainty, elasticity and economy are all better met in a G.S.T. system. Tax on goods that are now sold in the Public Distribution System meant for the Below Poverty Line people may be taxed at a concessional rate of only one percent. Not taxing at all will create opportunity for diversion and black money generation as it does not allow for monitoring. Leave the choice of what such a person wants to buy to him/her by directly paying the subsidy amount into his/her Aadhaar verified bank account.

Also, taxing different classes of products differently can be inbuilt into the G.S.T., especially products such as Food and other essentials and also, products that are enablers, so as to benefit the Government and the users – (See “Pricing of Fuel and other Enablers”). Enablers are products that are not really end products of consumption but that are consumed to enable production of other end products that are in turn taxable. (Fuel, Spectrum, Education, Skill Training, Health Insurance etc.). IDEAz recommends Three G.S.T. slabs, say one percent, five/six percent and 10/12 percent. The additional level as approved by the Parliament can be kept for future expansion as may be needed in an emergency that too only for a limited period. The temptations to tax as much as possible should be resisted even though there will always be a reason to tax more (See Annexure-II, to understand the attitude of the Government towards taxation and Annexure-III, for some past peculiar taxes.) A ‘zero’ based budgeting system will help control such urging.

A ‘Sin cess’ can be added only to items such as alcohol and tobacco products to discourage consumption and to also, ensure that the present prices on such items do not drop drastically under the G.S.T. regime. The temptation to expand the range for any reason whatsoever is to be resisted.

The concept of cess on so-called luxury goods or cars is a mistaken concept. Luxury is really only High cost. The extra profit from such goods goes into the R & D that develops improvements that spins off into improvements all the way down the line. The failure of improvements of the common products / goods in the SSI sector in the past only proves the point. Luxury is a vague concept and only arises in the eye of the beholder. Cost cannot be the only criterion. In fact, greater consumption of luxury / high cost/ high technology goods leads not only to better goods down the spectrum but also, to greater innovation and entrepreneurship and greater tax revenue.

A cess to control consumption can be added on to Petroleum products to conserve our scarce Foreign Exchange. Any cess on any other products should be called for only in an emergency and should have a sunset clause of say upto a maximum of one year.

In any case the same percentage of tax on a high cost, so-called luxury product, is many times higher an amount than that on a similar good for common consumption. Seeing it in percentage terms is distorting. A 12 percent tax on a Rs. 30 lakh car is Rs. 3.6 lakhs while 12 percent tax on a Rs. 5.0 lakh car is only Rs. 60,000/-. It is only equitable for all to have the same percentage. The richer the person the more he/she consumes and hence, the more Consumption/ G.S.T. tax he/she pays.

All Senior Citizens today can recall when the Government then considered even Two Wheelers, Cars, Phones, Refrigerators, Air Conditioners, colour TV’s, Microwave Ovens, Washing Machines as luxury items and reserved all common usage items such as Shaving Razors, Kitchen appliances like Mixers, Juicers and Cooking stoves, for manufacture only in Small Scale Industries. All of which led to no R & D and no improvement and an ever-growing ‘black-market’ demand for imported items. You do not want to go back to those days. Why not aim to create an enabling environment here to encourage innovation and entrepreneurship across all products. Let those who desire to be pioneers and possess goods with the latest improvements bear the costs of the R&D and allow the improvements to soon trickle down to all similar products and benefit ALL!

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