You are on page 1of 8

10/23/2016

GST:MakehasteslowlyLivemint

Sections

Home Opinion
Last Modied: Wed, Oct 19 2016. 04 18 AM IST

GST: Make haste slowly


The governments concern about the impact of goods and services tax (GST) on the poor is
extremely valid. The price burden on them should not increase

126
Enter your email

Go

Subscribe to our newsletter.


Vijay Kelkar | Satya Poddar | V. Bhaskar

Finance minister Arun Jaitley. Photo: Pradeep Gaur/Mint

http://www.livemint.com/Opinion/UyvjL1qneWAEQRnBs8YnVN/GSTMakehasteslowly.html

1/8

10/23/2016

GST:MakehasteslowlyLivemint

Augustus Caesar (63 BC-14 AD) was one of the most successful Roman emperors. He
implemented a number of reforms, including of the taxation system, during his prosperous
reign. His motto was Festina LenteMake Haste Slowly. Conventional interpretation takes
this to mean that you can achieve your objectives successfully and quickly only if you move
forward in a methodical and considered manner. This oxymoron appears increasingly
relevant in the context of the implementation of the goods and services tax (GST).
Why make haste?
We have to be a nation in a hurry to root out poverty by accelerating growth in our economy.
As the NITI Aayog points out in its handbook Transforming India, a continuous growth rate
of 7.4% over the next 16 years until 2032 will still leave us with about 5% of the population
below the poverty line. It suggests that we should target a higher growth rate of 10%, which
will make India a $10 trillion economy with no poverty by 2032. For this, it projects that the
growth rate of the manufacturing and service sector should be 10-12%.
This is an admirable and worthy target, but we must keep in mind that even if we achieve
such an ambitious target, growing at 10% every year for the next 16 years, our per capita GDP
(gross domestic product) in 2032 will be only about $6,750. The world average nominal per
capita GDP today is about $11,000. For achieving todays world average in 2032, we will have
to grow at 13.5% every year!

Clearly, we have to make haste, not only to remove poverty but also to enable a decent
standard of living to all our citizens so that India can take its rightful place on the world
stage. This also implies that India can no longer afford to exclusively tread the path of
gradual, calibrated reform through an incremental approach. It has been more than 10 years
since the GST was proposed in a budget speech. We now have to make haste to implement it,
so that we can leverage the growth impetus it will provide.
The National Council of Applied Economic Research (NCAER) did a study for the Thirteenth
Finance Commission on the impact of the implementation of GST on growth. The report
indicated that a comprehensive GST would accelerate growth between 0.9-1.7% across goods
and services. This is much needed.
There is still a school of thought which says that there needs to be adequate preparation for
GST implementationand rather than putting in place a hurried GST in April 2017, we
should implement a well-prepared GST subsequently. There was a possibility of the
proponents for delay and those arguing for implementing GST in April 2017 playing a game
of chicken. In this game, the winning strategy is to throw away the steering wheel so that
the oncoming car driver knows that you cannot swerve and therefore he has to. The nance
minister has successfully thrown away the steering wheel by notifying all the sections of
http://www.livemint.com/Opinion/UyvjL1qneWAEQRnBs8YnVN/GSTMakehasteslowly.html

2/8

10/23/2016

GST:MakehasteslowlyLivemint

the Constitution (101st Amendment) Act on 16 September 2016. As per Section 19 of the Act,
the GST has to be implemented within one year of the notication, since after this period the
laws relating to the levy of excise, service tax and VAT (value-added tax), as we know it now,
will no longer be in force. He has thus won the game, since GST cannot be delayed beyond
September 2017. He is to be congratulated for successfully making haste.
Why slowly?
In the matter of timing, we need to make haste. However, in the matter of the rate structure,
we may need to move slowly and methodically. As management guru Stephen Covey insists,
we must begin with the end in mind. What is the end we seek? An efcient GST structure
which will accelerate the economys growth rate. What is the efcient GST structure which
will be consistent with the governments policy imperatives of Make In India, Skill India,
Stand Up India, Startup India, and Digital India? A One India framework comprising One
Indirect Tax, One Rate, and One Registration.
One indirect tax would be the GST. It is essential that all indirect taxes on all goods are
subsumed into the GST. The provision in the Act empowering the GST council to include
petroleum products in the GST base subsequently is therefore a welcome feature. We should
also consider including alcohol for human consumption in the GST base at some point
with the caveat that such inclusions would be additionally subject to a special excise
outside the GST.

One rate is a crucial part of the structure. It would enable the levy of a single low rate on a
very broad and comprehensive base, eliminating litigation and rent-seeking on
classication disputes, promoting voluntary compliance and ensuring simple and effective
implementation. One rate does not imply one permanent rate. It can be amended relatively
easily when required.
One issue on the levy of one rate which could possibly cause concern is the impact on
ination. This is because hitherto exempt items would now be subject to a signicant tax
burden, thus upwardly biasing ination. There is an apprehension that the tax on the
manufacturing sector (which will fall) will not be passed on to consumersas was observed
during the implementation of VATwhile the increased tax on the services sector will
inevitably trigger higher costs and thus ination. It has been argued that government should
adopt a rate structure which does not adversely affect ination. It has been further argued
that the with food and beverages, clothing, footwear and housing carrying about 62% in the
CPI (consumer price index) basket, and about 71% of the CPI basket already exempt from
Central excise, it would be disastrous for the Central government to levy one rate on all
these goods. It is nally argued that most of these essential items should either be exempted
or be subjected to a low rate.
http://www.livemint.com/Opinion/UyvjL1qneWAEQRnBs8YnVN/GSTMakehasteslowly.html

3/8

10/23/2016

GST:MakehasteslowlyLivemint

Keeping in mind revenue considerations, such analyses could additionally point towards a
need for a multiple rate structuresay, four or ve rates for the GST. These could include a 1%
rate for bullion, a low rate for the hitherto exempted items under excise (but which were
taxed under VAT), two standard rates depending upon the character of the goods, and a
higher rate for luxury and sin goods. Such an analysis would indicate the creation of a verate structure and the creation of a pool of exempted items which may comprise a
signicant percentage of the total base. Such an approach would strengthen rather than
eradicate the bogey of a complex, opaque, and unresponsive indirect tax framework. It would
dilute the GSTs efciency, weakening its growth-inducing characteristics.
The governments concern about the impact of GST on the poor is extremely valid. The price
burden on them should not increase. Yet, there are other ways of addressing this important
issue than diluting the GSTs efciency. Rather than providing exemptions for necessities to
help low-income households, the government could use the Direct Benet Transfer (DBT)
system (through Aadhaar-linked bank accounts) to supplement their incomes. With
Aadhaar covering more than one billion persons and 93% of all adults in the country so far,
this is an extremely doable proposition. A DBT of Rs2,000 per annum to each individual
below the poverty line (BPL) would more than offset any incremental impact of GST on her.
Assuming 250 million potential recipients, the total budgetary cost of this scheme would be
Rs50,000 crore per annum. By comparison, the revenue foregone by exempting necessities
from the tax would be ve-six times larger. State governments could be mandated to identify

their BPL population using Aadhaar as the base. Allocations to state governments could be
based upon nationally agreed state-level poverty gures. This DBT devolution mechanism
could be expanded over time to include other social security schemes (some are being
implemented thus already), rather than conning itself to providing compensation to the
poor for any negative impact of GST.
Thus, there is a good case for the implementation of one rate in GST. What should the rate
be? As commentators have pointed out earlier, while computation of the revenue neutral
rate (RNR) for the Centre is possible, it is extremely difcult to compute the RNR for states
given the lack of state-wise service tax data. The task force set up by the Thirteenth Finance
Commission recommended an integrated rate of 12%7% for the state GST and 5% for the
Central GST. This could be a good place to begin. This rate will essentially be a leap of faith,
with of course the proviso that it can be changed, if and when necessary, slowly and
incrementally.
One registration is also a crucial component of the GST compact. With the advent of GST
laws in 29 states and two Union territories (UTs) with legislatures, a national manufacturer
will be required to register at 31 different places (not counting the other UTs which may
separately require it) for collecting and paying state GST. This process will be cumbersome
http://www.livemint.com/Opinion/UyvjL1qneWAEQRnBs8YnVN/GSTMakehasteslowly.html

4/8

10/23/2016

GST:MakehasteslowlyLivemint

and time-consuming for a manufacturer who should be focusing more on Make In India.
Modalities could be put in place for central registration under GSTN, with state governments
having the liberty to cancel the registration in their states if the mandatory physical
inspection of the dealers premises within a specied period reveals irregularities.
A single-rate GST with DBT and a single registration will signicantly enlarge the
constituency of winners. Businesses would be happy. Tax compliance would be simplied
with one registration. The economy would prosper. Governments would collect more
revenue through better compliance, and growth would be kick-started.
From all of this, we see that the balance of convenience lies in the implementation of a
single-rate GST (say 12%) concomitant with a single registration authorization all over the
country with a provision for a review of these provisions after a specied period of timesay
three years. Let us make haste slowly while implementing the GST.
VijayKelkar,SatyaPoddar,V.Bhaskarare,respectively,chairmanattheNationalInstituteofPublic
FinanceandPolicy,policyadviseratEYIndia,andformerchiefsecretary(finance),governmentof
AndhraPradesh.

Comments are welcome at views@livemint.com


Vijay Kelkar |

TOPICS: GST

Satya Poddar |

GST IMPACT

GDP GROWTH

V. Bhaskar

GROWTH RATE

GST RATE

First Published: Wed, Oct 19 2016. 03 46 AM IST

READ MORE FROM LIVEMINT


Reliance Jio free service offer available for subscription till 3 December
Amit Singhal, former Google Search head, to join Paytm board
2002 Gujarat riot case: 14 acquitted, 17 others sentenced to life
EDITOR'S PICKS

http://www.livemint.com/Opinion/UyvjL1qneWAEQRnBs8YnVN/GSTMakehasteslowly.html

5/8

10/23/2016

GST:MakehasteslowlyLivemint

Debit card compromised: Should you be worried?

Behind MakeMyTrips Ibibo deal lies Lee Fixel, a court case and a party

http://www.livemint.com/Opinion/UyvjL1qneWAEQRnBs8YnVN/GSTMakehasteslowly.html

6/8

10/23/2016

GST:MakehasteslowlyLivemint

Trump vs Clinton slugfest: Here is what the international media is saying

FROM THE WEB

Her Dad Was Shocked


After Checking Her Bank
Balance

Sponsored by Revcontent

12 People Who Never


Wear a Bra
Box Music Club

CareerTimes

http://www.livemint.com/Opinion/UyvjL1qneWAEQRnBs8YnVN/GSTMakehasteslowly.html

Attention People From


Jammu - Secret Way To
Get Rich
CareerTimes

7/8

10/23/2016

The World's Best Recipe


To Lose Weight! -28Kg In
1 Month Doing Nothing!
Try
HealthNow!

GST:MakehasteslowlyLivemint

Jammu Girl Gets 4


Shades Fairer In Just 2
Min by Using This 1
Weird
Old Trick!
Dr. Ankur Walia

20 Pictures That Hillary


Clinton Wishes Would Go
Away
Detonate.com

HOME | COMPANIES | OPINION | INDUSTRY | POLITICS | CONSUMER | LOUNGE |


MULTIMEDIA | MONEY | SITEMAP

Subscribe | ContactUs | MintCode | Privacypolicy | TermsofUse | Advertising | MintApps | AboutUs |


Syndication | MintonSunday | RSS | HindustanTimes | Desimartini
Copyright 2016 HT Media Ltd. All Rights Reserved

http://www.livemint.com/Opinion/UyvjL1qneWAEQRnBs8YnVN/GSTMakehasteslowly.html

8/8

You might also like