New Indian GST – When is it going to happen By Dr. Bobby Srinivasan and Dr. Sudhakar Balachandran

September 13, 2016 | Posted by bobbysrinivasan << back to blog

The World Bank in 2016 has reported that India is ranked 157 out of 189 countries in the case of paying taxes. The proposed GST is expected to improve the ranking. Currently there are nearly 15 different tax codes across India. But GST will hopefully make it all one to tell the world that we are one nation, one market and one tax code. This is a conversation between a student and his professor.

Student: Professor, I recently read in paper that a constitutional amendment was passed in the upper house of the parliament after many years of wrangling. Does that mean that we are ready to implement the GST.

Professor: Don’t be in a hurry. This institutional amendment must be ratified by the lower house and a majority of states. The GST council consisting of central and state finance ministers must begin the crucial task of tax bands for different items. After this these rates have to be passed by the central and state governments. Currently the expert committee has suggested 4 bands namely zero for essential goods, 12% for merit goods consumed by poor and middle class or standard rate of 17-18 for most of the goods and 40% for luxury brands.

Student: This looks too high. The government is already taxing us high with their income tax rates.

Professor: Indian government is in perpetual deficit. According to data, only 12.5 million out of 1.3 billion people pay the taxes. Currently agriculture income currently tax free. Some how or the other lots of people who should be paying taxes are avoiding. With the introduction of GST, the tax will become part of expenditure. You can hide the income but cannot hide expenses. GST will be added for practically for every purchase in the country. Besides the service industry will bear quite a burden.

Student: Is the GST easily implementable.

Professor: I don’t think so. Every state I believe has to agree. Every state wants to get a big share of GST. The intention I thought was to make the central government coiffeur rich to pay off debt or to reduce their deficits. In India laws are easy to make but implementation is another story. Each state government is expecting a big chunk of the central collection. If GST is implemented other consumption or the savings rates will go down.

Student: Our Finance Minister Arun Jaitley wants to implement in April 2017.

Professor: He knows that it will not happen but he can always be hopeful. Luckily alcohol has been exempted from GST and it has become the domain of state governments. Tamilnadu is contemplating prohibition. They receive 30000 Crores of excise duty. If they decide to give it up they will expect the Central government to compensate for their losses.

Student: Are you then saying that it is lot of talks, but no action.

Professor: I will wait and watch. OK.

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