GST Bill A Hollow Promise Akin to Retrieving Black Money Stashed Overseas?

Will the likes of criminal banker TM Bhasin lording it over in the Central Vigilance Commission and Prime Minister Modi’s enemy within – his cabinet – Arun Jaitley succeed in killing the public sector banks by their repeated assaults and thus cause the premature death of the still-born GST regime?

A lot of song and dance is being made out about FM Arun Jaitley succeeding in getting the Gone-Gress to cooperate. India’s electoral compulsions had isolated Sonia’s flock and the BJP top brass claiming credit over the GST bill only stamped on a dead snake.

Readers may deduce the answers to the above queries by carefully reading the following paragraphs.

Facts

The buzzword is that the India’s US$2 trillion economy’s current annual growth rate of 7% will go up by 2 percentage points. Some 75 lakh [7.5 million] businesses will be covered by the tax.

The unanimity in the assent to the bill is being termed the “victory of India’s democratic federalism.”

The National Democratic Alliance [NDA] regime claims the passage of the bill would improve India’s GDP and vastly ease the conduct of commercial activity.

The government apparently favours an 18% GST rate – leaving the door open for inflationary developments.

Comments on the development, to say mildly, are ‘mixed’.

While India Inc. stakeholders went gaga over the development, international opinion is very, very cautious while reacting to this development.

“GST is one of the most awaited reform measures by the industry. The consensus in the passage of crucial GST bill is heartening. It would help form base of a robust GST framework for India,” said Harshvardhan Neotia, President, Federation of Indian Chambers of Commerce and Industry [FICCI].

Revenue Secretary Hasmukh Adhia and economic adviser Arvind Subramanian have said that no nation has claimed a flawless GST since inception.

The British Broadcasting Corporation [BBC] was circumspect.

“A successful GST in India will be a minor miracle,” its Delhi correspondent Soutik Biswas said.

The passage of the bill, The Economist opined, “Is not quite an act of fiscal unification”. However, it is simpler than the thicket of taxes it seeks to replace, the magazine added.

“No country of comparable size and complexity has attempted a tax reform of this scale,” Harishankar Subramanian of Ernst and Young pointed out.

“The GST regime will facilitate smooth movement of goods and eliminate numerous border hurdles for surface logistics service providers. Currently, Indian inventory spend (losses, obsolescence, wastage) can be up to 50-60 per cent of the overall logistics spend,” Deepak Garg, Founder, Rivigo pointed out.

“A less-than-perfect GST can be improved down the road. It will be better than our current patchwork quilt of taxes that prevent India from being stitched into a single market,” averred economist Vivek Dehejia.

Indian software giant Infosys is building a gigantic electronic infrastructure – a GST portal – where taxpayers can register, make payments and file returns.

Implementing the complex new tax system could well-nigh be next to impossible due to inbuilt glitches.

India’s high corrupt and criminalised debt-saddled state-owned banks need will need to ease lending. Currently, it is loaded in favour of fugitive scofflaws like Vijay Mallya and those of his ilk.

Only 20% of companies are actually getting ready for the tax, reveal government’s estimates. Hence, GST, by itself, is no magic pill.

India also needs to mop up a lot more income tax – only 1% of Indians pay the tax and evasion is pervasive.

Successive governments appear to be helpless in reforming a corrupt tax-collection machinery.

In India, tax evasion is a national sport says a Bloomberg report:

India loses 14 trillion rupees ($314 billion) from tax evasion annually, depriving it of funds for investment in roads, ports, and power, says Arun Kumar, author of The Black Economy in India. General government tax revenue is an estimated 18 percent of India’s $1.5 trillion in gross domestic product, the lowest among the four BRIC nations, International Monetary Fund data show. With so little revenue coming in, Prime Minister Manmohan Singh is now attempting India’s biggest overhaul of the tax code in half a century.

Quartz reveals a softer sinister underbelly.

Only about 12.5 million Indians — or 1% of the total population—paid tax on their earnings in fiscal 2013. Although 28.7 million filed tax returns that year, 16.2 million got away without paying any tax, data shows.

India copies most of its laws from the United Kingdom – where Value-Added-Tax or VAT is in vogue for nearly 2 decades. It is the precursor of the GST bill in India. Its salient features excerpted from the relevant Wikipedia dossier:

Value-added tax (VAT) is a consumption tax levied in the United Kingdom by the national government. Introduced in 1973, it is the third largest source of government revenue after income tax and National Insurance. It is administered and collected by HM Revenue and Customs. The relevant law is – the Value Added Tax Act 1994.

VAT is levied on most goods and services provided by registered businesses in the UK and some goods and services imported from outside the European Union.

The current default VAT rate is the standard 20% ad valorem since 4 January 2011.

Under EU law, the standard rate of VAT in any EU state cannot be lower than 15%.

VAT is tax levied on sale of goods and services by those who raise invoices upon getting paid.

Examples: A lawyer’s or an accountant’s or a political advisor’s or a PR agency’s fee for services rendered could be £100 plus VAT. The grocer’s bill for monthly supplies for home could be £200 plus VAT. A restaurant bill could be £24 plus VAT. Selling and buying sans an invoice is an offence in the UK. And VAT has to be clearly mentioned in every memo – cash/credit-card-swipe-record and/or credit invoice. At least 95% of transactions are made through credit and/or debit cards or cheques or internet banking.

Its critics say the system is loaded against the consumer.

The producer who has paid VAT on raw materials to create the finished product gets a refund on the tax. So do the stockists/wholesalers and retailers. The final burden falls on the consumer whose pay-out covers the taxes on each mark up from factory to point of sale.

Illustration: A 1 litre bottle of potable drinking water may cost £0.25 at the factory and end up at £2.40 at the final point when sold through a retailer after passing through a maze of transporters, warehouses, stockists and wholesalers. Of this, the consumer would have ended up paying £1.40 as VAT on a product that costs a mere £0.25 originally. Along the way, every outlet would have collected its profit margin and have the option of only paying corporate tax at the end of the year after a lot of tax-planning through experienced chartered accountants.

No such luxury is available to the end-user.

[Figures are merely illustrative and have been kept artificially and arithmetically simple.]

In the United Kingdom, there is no guarantee as to whether the money paid by the consumer finally as VAT – thereby underwriting the burdens of all the industrialists and their distribution networks’ movers and shakers – is put to proper use at all. Worse, the collection methods themselves leave a lot unsaid.

Criminal evasion is tacitly admitted to by the British Government itself!

A simple catechism to explore the viability of GST in India – fashioned on VAT in vogue elsewhere in the globe:

The largest chunk of transactions of lawyers, finance-professionals, PR agencies et al are done in cash. Reasons for the same is a criminally bent, corrupt section of the judiciary, tax authorities and parliamentarians.

Would anyone in his/her right mind, honestly reflect the fees and collect GST through printed invoices as mandated by the GST bill if and when it comes into effect?

Answer: NO!

Most of the groceries and other knick-knacks are sold through small, family run outlets who never issue cash memos. The outlets themselves buy their supplies from stockists, paying in cash.

In that scenario, what would be the chances of the stringent GST clauses producing tangible results in letter and spirit?

Answer: Close to zero!

So, why is everyone singing paeans about the GST Bill?

Answers are hidden in 3 parts.

The first facet of the GST bill is to help big business houses aiming at creating supermarkets with inputs from foreign direct investments in the retail sector nationwide. It could kill the influx of cheap Chinese goods into the Indian market – to be replaced by those made in India with technological inputs from advanced NATO nations and/or their adjuncts in Asia Pacific region. Raw material and farm product producers in India would be at the rough end of the stick – as bulk of the profits would only go to the big firms.

The second design is aimed at the corrupt bureaucracy that benefits the most owing to the confusing maze of multiple taxes in the 29 states of India. The states’ government servants could delay the ratification of the GST Bill in their respective backyards as the focus of taxes’ governance would be at the hands of the central government staff. The only way to tackle the imbroglio could be the absorption of local tax ministries’ mandarins into a new concurrent list of government officials – like the IAS and IPS varieties. The centre’s influence would grow and the regional political satraps and/or administrative heads would be side-lined.

The third angle is the run-up to the ensuing 2017 elections in the assemblies of the following Indian states – Goa, Manipur, Himachal Pradesh, Uttarakhand, UP, Gujarat and Punjab states.

Each of the states’ assemblies have to ratify the GST Bill before it becomes an applicable law in India. As the ensuing elections are looming large, it could take months before something tangible happens. The earliest possible date is All Fools’ Day or April 1 2017.

In Goa, the fight will be between the ruling BJP and the opposition united behind Arvind Kejriwal’s Aam Aadmi Party [AAP] or a regional outfit backed by the Congress. It is expected to be bitter and tough.

In the northeast state of Manipur, the Congress is in the driver’s seat. The BJP’s fight is expected to only be of token value.

In Himachal Pradesh, the BJP has a serious score to settle with the allegedly corruption tainted incumbent Congress CM Virbhadra Singh.

In Uttarakhand, current Congress CM Harish Rawat had managed to get a Supreme Court verdict in his favour after his government was dismissed using Article 356 of the Constitution. The fight could be tough as many from the treasury side are in secret parleys with the BJP-led opposition.

In Uttar Pradesh, the ruling Samajwadi Party regime led by Akhilesh Yadav is thoroughly discredited. His challengers are Mayawati – the virtual Jayalalithaa of the north – controlling her outfit with an iron hand, the BJP and the Congress party led by Sheila Dikshit – who only has a velvet glove sans a hand. The hands she has for aid are those of Rahul and Priyanka Gandhi Vadra – scions of the Nehru-Gandhi clan. Rahul has the capacity to singlehandedly lose any state’s election and his elder female sibling is on the defensive over huge corruption charges against her husband Robert Vadra.

This is the most important of all the states – as the bitter opponents – BSP and SP voted in favour of the GST. Of the 2 BSP has better chances of forging the largest alliance – to oppose SP and the BJP.

UP would be one of the biggest gainers through the GST bill. The BJP’s major successes in the 2014 parliamentary polls could play a major role in giving the SP juggernaut a run for its money.

The Gujarat state election results will be up for grabs as the sudden exit of Modi camp follower CM Anandiben has left the party in some sort of disarray. The GST bill could adversely hit the revenues of Gujarat – as it is a manufacturing state exporting its produce all over India. Nevertheless, being the PM’s home state, the BJP is expected to pull all the stops to stymie the opposition.

In the Punjab, the chances of the Akali Dal-BJP alliance retaining power are in doubt as a big challenge is being mounted by Kejriwal – whose nominee could be backed by the rest of the opposition including the Congress. The sudden exit of ex-cricketer NS Sidhu and his campaign against the dominance of the Amritsar loser and current Union Finance Minister Jaitley could render the state’s electoral battle a bitter, pitched, dirty affair.

Of the 7 states, BJP is part of the ruling clique in 3. Through the chimera of the GST Bill, it obviously hopes to increase its tally to at least 5 – which could include UP.

That would mean that the preparations for Modi’s return to the 7RCR tenancy in 2019 could become brighter.

The original questions again:

Will the euphoria over the passage of the Goods & Services Tax bill in India’s upper house be as farcical a promise as was the ruling Bharatiya Janata Party’s vow to deposit Rs.15 lakhs [1.5 million] in the bank account of every Indian during the run up to the 2014 general elections?

But for one regional party – the All India Anna Dravida Munnetra Kazhagam that staged a walkout in protest, on paper – the denouement in the upper house at 2144 hours on August 3 2016 after a lengthy debate on the GST bill said: Ayes – 203, Noes – Nil.

Is the political spectrum of India that is Bharat – play acting by claiming that the passage of GST Bill was so unanimous and shall irrevocably render the nation as a single market bound by a uniform tax regime?

Will the so-called holistic endeavour prove to be as full of holes as there are in Swiss cheese that will actually make the life of the common citizen of India more miserable?

Could the facile passage of the neo amendments suggested in the upper house in Lok Sabha – a day after its passing in the Rajya Sabha have any worthwhile meaning?

Will the likes of criminal banker TM Bhasin lording it over in the Central Vigilance Commission and Prime Minister Modi’s enemy within – his cabinet – Arun Jaitley succeed in killing the public sector banks by their repeated assaults and thus cause the premature death of the GST regime?

Readers are welcome to guess the answers to these and thus increase their existing ulcers.