CONGRESS PUSHING GST TO 2017… WHY …???
- December 1, 2015
- Posted by: Indirect Tax Professionals
- Category: News
Let’s start with some facts. No government across the world has been re-elected after they implemented goods and service tax (GST). Not just that, the benefits of the GST were always reaped by the succeeding government.
In India, all the earlier governments from the NDA led by Atal Bihari Vajpayee in 1999 to UPA (1&2) led by Manmohan Singh had plans to implement goods and service tax (GST). It’s a surprise then that even in 2015; Narendra Modi has to go out of his way to woo Sonia Gandhi and Manmohan Singh to support the GST Bill.
However, despite all the noise around the centralised tax being good for the economy, Congress would want that BJP to implements the GST, but not before 2017.
In the long run, GST could boost (and would boost in all probability) India’s gross domestic product ( GDP) by anywhere around 1.5% to 2%. Yet, there is a huge drawback of GST. In the short run—that is initial two to three years—GST would trigger inflation. Everything from your groceries to your movie tickets would become more expensive by anywhere around 5% to 8% (assuming GST is at 18% to 22%)
So if the Congress manages to stall GST until 2017, there would be a spike in inflation till 2019. And the Congress could easily blame the BJP for the inflation and hope to score politically in the 2019 elections. After all it would be tough task for BJP or any other ruling party to explain to the voters that the inflation is a result of GST and not mismanagement. Not just that, if by a miracle, Congress manages to pull this off and form a government in 2019; even if it doesn’t do much, the growth would start (of course ceteris paribus) by 2020.
How GST works:
Simply put, GST is a nationalised tax, which would remove all (almost) other indirect taxes. How it works is that the government would levy a unified tax on all goods and services across India.
For Example: Whether you manufacture a car in Maharashtra or in Assam, the tax paid would be the same. There are a lot of benefits of GST, which includes the unified tax regime across India and reduction of black money.
Also currently there are many different taxes; service tax, sales tax, VAT (value added tax), entry tax, entertainment tax and others. All these taxes are administered by different administration and there is lack of communication between these departments. Currently, many companies maintain a different account for sales tax, for excise and for income tax. These companies try to exploit the situation and pay minimum taxes. This is impossible under GST as there is a unified tax,hence tax collection would increase.
Malaysia implemented GST from April 1, 2015 and has seen a huge jump (2.5%) in inflation.
Yet, the short term pain is outweighed by the long term benefits. As cost of goods and services increase, so do the margins for manufacturers and service providers. This means those with capital would want to invest more. In the long run as more manufacturers and service providers compete for the same customers, the prices would come down, so would the inflation. And bingo; you have higher GDP and reducing inflation.
But to complete this circle; it would take anywhere between 2-3 years.
Will NaMo rise to the challenge?
There is a huge probability that if the BJP government implements GST by 2017, the inflation would increase. This could irk the voters and they may chose to reject the BJP for the high prices.
Yet, starting 2019 the growth would kick start, jobs would increase and the black money would find its way in the Indian economy. Just that BJP may not be in power to reap the benefits.
The huge question now is, would Narendra Modi and the BJP want this? To implement the GST in 2017 or in 2018? Because Congress would definitely want this and would do everything in its power for this outcome.
In the past all the governments have stayed away from implementing GST for the same reason. But will Modi like the Batman become the hero that India deserves? It’s a long term game, over the short term pains, the future holds the answer.
Source: The Economic Times