By D M Deshpande
The GST Council has preferred an incremental reform and rationalisation of taxes.
It has decided to lower rates of 23 goods and services; this covers a range of white goods and services-cinema tickets, refrigerators, computers, televisions etc.
The move has been hailed as advance New Year’s gift to the citizens of India. Yet, the highest rate of 28% still remains on 28 goods and services which includes luxury and some ‘sin’ goods.
It was not comprehensible as to why cement and automobile components were still attracting 28% duty.
It has been clarified later that cement will be removed from the highest category. The fear of losing Rs 33,000 crore might have prompted the Council to retain these two at the present juncture. The blip in revenue, if at all, would have been temporary. Rate cuts will foster higher compliance, lesser costs and greater transparency. While the efforts to rationalise and reduce taxes is certainly a positive move, there is a shade of opinion that it could have been done in one go. The Council and the FM are making haste slowly, perhaps a wee bit too slowly that the full benefits of GST are still not going to the stakeholders which includes the government itself!
What was supposed to be a single tax rate all over the nation has turned out to still have seven rates for goods, 0, 0.5, 3,5,12,18 and 28% and five for services, 0, 5,12,18 and 28%!
Multiple rates versus single or at least fewer rates has been a matter of intense debate amongst experts-financial and economics and policy makers.
There is clear empirical evidence to suggest that single/fewer rates gives a boost to consumption and production; it is unambiguous and clear with greater transparency.
Perhaps at the time of rolling out the GST, it was necessary to accommodate views, needs and possibly even the moods of various states which form the Indian Union.
There is also a view that both luxury and so-called ‘sin’ goods need not be taxed to death. For one thing, definition of luxury is not clear; over a period of time, some luxuries become comforts and even necessities. Then so-called sin goods (isn’t it better to call them with at least a better nomenclature-demerit goods) are in fact, counterproductive.
At least some of them are at odds with government’s own proclaimed programme such as ‘Make in India’. Several examples can be cited; a five star hotel, actually creates a lot of direct and indirect employment. Look at the wide range of ancillary units it supports from bed linen, furniture and furnishing, air conditioners, rugs and carpets, washing and laundry services-some of these require periodic replacement-to large quantities of food produce-fruits, vegetables and the list is actually endless.
A typical 300 room hotel provides direct employment to at least 500 plus persons, waiters, chefs, banquet managers.
In addition, there are people employed in associated service providers-taxis, spa, swimming pool etc. In fact, it also earns valuable foreign exchange by attracting rich tourists from overseas.
India has, for the first time overtaken China in terms of attracting highest FDI. With more foreign investments, we need more five star hotels, not less.
The FM has announced that ultimately the 12% and 18% rates will merge and there will be only two rates-5 and the merged rate.
Actually, if you take in to account those goods and services that are exempt, there will be three rates. It is not more the merrier here. Rather the principle of KISS (Keep it simple, stupid) is more applicable. KISS has an interesting anecdote; it is attributed to Lockheed aircraft engineer Kelly Johnson.
He urged his engineers to keep the design of the combat aircraft so simple that even a stupid person should be able to repair the plane with bear minimum tools in the combat field!
Amazon proclaims proudly that it sells more than a crore goods in addition to myriad services. Besides, these keeping adding and changing all the time. So asking the bureaucrats to classify them in to different tax slabs is not only puzzling, it will be a sure shot entry in to a lot of muddle!
Low cost airline model in aviation has been a huge success since it is based on KISS principle-no frills, like food, beverages, allotted seats etc and point to point direct travel.
There is no denying the reformist credentials of NDA government.
GST was hanging fire for more than a decade and to bring varied states to common understanding was indeed a herculean task.
Now that the difficult part has been accomplished, petty party politics should not be allowed to hold back a few more steps that need to be taken.