An all-important tax reform 17 years in the making, and when the midnight hour struck for it to go on stream, the chief proponents sulked like schoolchildren and stayed at home.
The pettiness of India’s chief opposition Congress Party is beyond belief. It’s full of stalwarts like Palaniappan Chidambaram, Jairam Ramesh, Veerappa Moily, not to speak of Manmohan Singh, who know very well that there is nothing like perfection in anything that the government of India can do. It’s an imperfect democracy of, for and by an imperfect people.
The Congress, along with some of its new-found friends, boycotted the launch of the goods and services tax (GST) in the historic central hall of the parliament saying it was being done in a hurry.
The Congress was in power in 10 of those 17 years and had done quite a bit in terms of formulating the legislation. So it had a rightful claim in its implementation. But, as with several other path-breaking reforms like the Aadhar card, the Mahatma Gandhi National Rural Employment Guarantee Act (MNREGA) and such, it stopped short of breathing life into its own creations, a job that is now being undertaken by Prime Minister Narendra Modi in right earnest.
And then the Congress complains that the GST, in its present form, is an imperfect legislation and, therefore, would not want to be seen endorsing its inauguration.
Finance Minister Arun Jaitley himself admits that the GST is a work in progress. The five-slab tax structure starting at zero and going up to 28% is one area that will eventually see changes. The government has given traders and firms a 60-day window for compliance. This is quite likely to be extended as unforeseen issues could crop up in a vast country like India. It is simply impossible to think of every future issue and solve it before it comes. If you want to learn to swim, it’s no good standing on the shore. You have to jump into the water.
The Congress Party thinks it can do it by standing on dry land.
The other silly excuse trotted out by veteran Congressman Ghulam Nabi Azad was that there is nothing celebratory about introducing a tax law, leave alone a midnight jamboree reminiscent of India’s Independence Day in 1947. Yes, nothing can compare with the ‘tryst with destiny’ India had on that epochal night but is that reason enough not to emulate it on another historic occasion?
To extend that argument further, if India got political independence on August 15, 1947, Indians got economic independence on July 1, 2017.
The Modi government, to my mind, was spot on in celebrating the moment. And the prime minister made it a point to underline that the GST was not the making of any single party or government but the overall result of co-operative federalism where every stakeholder had her say.
That very reason was good enough for celebration in these times when every aspect of politics and governance is divided sharply along opposing ideas and ideologies.
The Congress Party is also at pains to paint Modi as the villain who stopped its attempt at GST when he was chief minister of Gujarat. Indeed Gujarat was in the forefront of the protesting states in 2011 because the GST envisaged by the Congress-led government did not give the states much say in the matter. For example, all tax was to be collected by the federal government and whatever percentage was due to an individual state was to be transferred to it at a later stage.
Many non-Congress states — Gujarat topped that list — feared that this money would either not come to them or would come in trickles making it almost useless. The GST now implemented divides the tax exactly as per the proportion decided and is credited to the centre and states simultaneously.
Thus, if a particular commodity attracts 18% GST, 9% will go to the federal kitty and 9% to the state. As Modi in his midnight speech put it succinctly, the GST is a “good and simple tax”.
Of course it was not the Modi government alone that made it possible. The GST Council, which sought consensus on all issues, was made up of finance ministers of all states with the federal finance minister, in the current instance Arun Jaitley, as its chairman.
The fact that finance ministers of Congress-ruled states, as also those ruled by the Left, the Trinamool Congress and the AIADMK, had found common ground with the BJP-led National Democratic Front government at the centre speaks volumes of the generous give-and-take spirit that worked behind the scenes.
The GST perhaps even outshines the economic liberalisation of the 1990s set in motion by the Narasimha Rao-led Congress government. Yes, opening up India to the world market was a giant step for a country that had been bearing the yoke of Nehruvian socialism for four decades. But India continued to be many markets with many laws leaving many to believe that it was easy to trade with the US than with the neighbouring state within the country.
Before July 1, 2017, there were 17 different taxes and 22 cesses to be complied with. Now it’s just one tax – GST.
The Delhi-Mumbai highway, the country’s busiest goods traffic corridor, goes through four states, each one with its own tax collection posts at entry points.
Surveys reveal that on an average a truck had to stop for at least 90 minutes at each of these check posts. With GST, the time thus saved is a minimum of six hours per trip, which helps the truck operator to add another four trips per month. There had been reports of trucks getting delayed for days at the Walayar check post on the Kerala-Tamil Nadu border.
On July 2 The Hindu newspaper published a photo of a deserted Walayar. Some estimates put the time and money thus saved to be worth as much as 1.5% of the GDP. The corruption that these check posts bred is also a thing of the past.
The seamless common market that the GST provides is only one of its major benefits. It also widens the tax base, thereby increasing total collection. Equally importantly, the GST will also deal a body blow to tax evaders and black money hoarders because every transaction leaves multiple audit trails that run the risk of being detected at one point or the other.
But for the government the challenges are many in the days and months ahead. An estimated 3.5bn invoices will have to be processed every month. The technology required for this humongous. How quickly businesses adapt the new system will also determine the success of the new tax regime although they cannot evade for ever.
Like last year’s demonetisation, the GST is also likely to affect businesses in the near term because there is much to be learned about the new law. Luckily for the government, the rate of inflation is well within the desired limit. The Reserve Bank will not be unduly worried if it climbs a point or so.
There is much ground to be covered before GST can be termed India’s success story of the century so far. The government will need continued co-operation from the opposition. For this Modi has to reach out every time there is need and that reaching out cannot be of the kind he used in the case of the presidential nominee.
The opposition, especially the Congress Party, should drop the midnight churlishness it showed on July 1 and stake its due claim as promoters of the new tax regime. It’s a team effort and everyone should rejoice at the victory. Maybe, just maybe, the GST could be the harbinger of more than mere better taxes!