Distorted criticisms on GST

Ground Scorching Tax 

Arun Kumar

Penguin Portfolio, 299 pages; Rs 499

The title of the book, the cover photo showing a rupee sign in a tangle of barbed wire and the approving reference to the Congress president’s description of “Gabbar Singh Tax” all demonstrate the author’s obsessive bias against the Goods and Services Tax (GST). But his logic for opposing it is all too shaky. The author appears to be a typical compulsive contrarian. The major part of this book is devoted to proving that GST is a highly complicated tax, that it is inflationary, has seriously harmed the unorganised sector, has led to marginalisation of the marginalised and so on. I shall examine each one of his propositions.

Regarding the GST’s complexities, the author has made no mention of the degree of complication in the previous tax regime. GST has amalgamated nearly 16 taxes, for which he does not give it any credit. The previous tax regime also had a highly complicated concept of manufacture based on marketability on which there were literally more than a hundred Supreme Court and High Court judgments. The entry tax used to detain trucks carrying goods at state borders made the journey very long. The central sales tax of 4 per cent was not allowed input credit, which had made inter-state trade unprofitable to that extent and encouraged manufacturers to buy from the same state even though better goods were available in another state. There were many rates of sales tax in the states, which have now been merged into the GST. The zero rating of export was not comprehensive before, but is now possible with the GST. A common market for the whole country has been achieved as a result. Earlier, the definition of a taxable event was complicated because it differed for excise, sales tax and service tax. That controversy no longer exists because under the GST, the new taxable event is the supply of goods and services, not manufacture or sale and so on.

The present tax is so simple to operate. I have made some extensive market enquiries to judge the impact of the GST. If I buy medicine, the shopkeeper simply writes the names of the medicines and the invoice with the appropriate classification, showing  6 per cent Central tax and 6 per cent state tax, comes out in a jiffy. When I go for a swim, the receptionist presses a button on a small machine, producing a receipt showing 9 per cent central tax and 9 per cent state tax. 

There is a high threshold now for small-scale units and a compounded levy for the unorganised sector. The author points out that they do not get input credit. Since the tax is 1 per cent (as he himself says), what is the need for input credit? The unorganised sector must have adopted the new tax because there have been no protests.

The author says the GST is inflationary. Then he admits that the official statistics of wholesale price index and consumer price index do not support this notion. But he doubts the price indices on the ground that services are not included. The only service he could name is school fees, which has not been included in the consumer price index. I cannot comment on this argument if the author does not believe the price indices, which even the Reserve Bank of India accepts. 

The author’s favourite theory is that black money cannot be removed by the GST. He rightly admits that this can only be solved if politicians, executives and businesspeople change their attitudes. I agree, but the GST cannot be blamed for this. All I can assert is that with the GST the possibility of evasion is much less than before.

The author suggests we scrap the GST and introduce retail sales tax. Had he studied the subject more thoroughly, he would know that states did experiment with this but gave it up because of the high level of evasion. There was no discussion of this beyond a bland statement.

Mr Kumar  has not consulted the best authorities on the subject such as Butter­worths, Alan A Tait, Richard M Bird and Milka Casanegra De Jantscher, Malcolm Gills, Carl S Shoup, Gerardo P Sicat, and books written by the International Monetary Fund and the World Bank. He has even avoided referring to several authentic reports from the National Institute of Public Finance and Policy by Raja Chelliah, Amaresh Bagchi or Parthasarathi Shome. He has made no effort to study the world’s best magazines on GST , namely, the VAT Monitor  and  Asia Pacific Tax Bulletin.  The result is that his knowledge base is very limited. He has not read what does not suit him. He is given to sloganeering — such as “marginalisation of the marginalised” (echoing the Marxian slogan of immiseration of the proletariat) which he has repeated innumerable times without proving it. This reflects only his entrenched belief. The best part of the book is the appendix, which contains an impressive collection of long-term series on taxes. 

The reviewer is former member, Central Board of Excise and Customs