India has successfully become a GST nation. The transition to the new indirect tax regime which came into force from July 1 has been smooth, so far.It is said the Goods & Services Tax, which was in the making for over 17 years, will be good for the Indian economy. To some extent, that argument holds true.
Before GST, every state in India had its own tax structure and taxes for the same product varied from state to state. And to enforce the state-level taxes, every state had check posts along its boundaries. These checkpoints impeded the movement of goods, thus creating domestic trade barriers.
GST has changed all this and turned India into a single market. The other major change is uniform taxation across the nation as GST subsumed a long list of existing taxes. Barring these two, there are no other tangible benefits.
But the Narendra Modi government created much hype around GST as if the new tax regime would eliminate tax evasions and place the country in the elite league of developed nations. Union Finance Minister Arun Jaitley even exhorted Indians to think like citizens of a developed country and start paying more taxes.
Of course, Prime Minister Modi and his Cabinet colleagues are good at converting every adverse situation into a political opportunity as happened during the demonetisation drive which pushed the country into acute cash crunch for a prolonged period.
Cash crunch still haunts the nation even though major part of the note ban exercise ended six months ago. Farmers are still finding it difficult to get adequate cash from banks for their agriculture operations. Yet, the Modi government and RBI, which claimed that the demonetisation had dealt a death blow to black money menace, are yet to come out with a progress report on what the ill-advised note ban exercise has achieved.
Now, the Modi government is saying that GST will create wonders for the country by reducing tax evasion and increasing tax base. But unnecessary hype around GST is unwarranted as it has simply replaced existing taxes. Moreover, most of the new tax rates are closer to the rates existed prior to the GST launch.
Going by the past experiences such as demonetisation, it’s unlikely that tax evasion will come down in the GST era. Tax evasion is majorly linked to high tax rates. The peak rate of 28 per cent GST in India is the highest tax among all the countries which embraced this destination-based tax.
As if this hype about curbing the tax evasion is not enough, the Prime Minister went a step further and recently said GST would curb black money. It’s a known thing that high taxes and corruption are the two things that lead to the generation of black money.
Without reducing taxes drastically and eliminating corruption, there is no way black money can be curbed. Therefore, it’s time the governments at the Centre and in the States, stop creating unnecessary hype about GST rollout. That will do a lot of good to India and its economy!