Whither the Good and Simple Tax?

  1. One nation — one tax: The GST was touted as a means to create a unified market with the dismantling of myriad state taxes and levies. But has this really happened? The myriad taxes were simply replaced by many tax rates. The Indian GST system currently has 4 non-zero GST rates -5, 12, 18, and 28 percent. “Milk and Mercedes cannot be taxed at the same rate in India” was the common argument that was put forth in support of the many tax rates. However, this has made the taxation system complex. Although tax rates are uniform across the country, the many tax rates and the whims of the council to decide which product will be taxed at a particular tax rate has made the mechanism close to being one of a “draw of lots”. Add to this, the various cesses levied (which ensures that there is no revenue sharing here) have also made a mockery of the system. Through the GST, theoretically, the states had given up their individual right to levy taxes. However, the exigencies of the political and economic environment have allowed for exceptions. For e.g.: Kerala has been allowed to levy a cess on account of the floods that rocked the state. Now that the precedent has been set, what happens to others ? Will UP be allowed a cow cess? Similarly, the electoral compulsions of states going in to elections have taken center stage. What else could explain the rate cut on khakras before the Gujarat assembly elections or the change in criteria for the composition scheme few months before the General elections? The Central Government with disproportionate voting rights of 33%is definitely in a position of a conflict of interest of sorts and can use it to further political interests. Renowned tax lawyer Arvind Datar in this speech prophesied this eventuality! (https://www.google.com/url?sa=t&rct=j&q=&esrc=s&source=web&cd=2&cad=rja&uact=8&ved=2ahUKEwispLCxqIHgAhVHL48KHelYBv0QwqsBMAF6BAgBEAQ&url=https%3A%2F%2Fwww.youtube.com%2Fwatch%3Fv%3DxGmJyxugA2E&usg=AOvVaw1fw9-Q3h1rvfITHxiaiovB)
  2. Eliminating tax evasion through compliance measures: The GST was touted to be the panacea to cure the tax evasion malaise. The voucher matching system was meant to ensure high levels of compliance. The unintended consequence of this was that businesses began to avoid risk taking altogether. The central premise of any business is its willingness and ability to take calculated risks. With these levels of pressure in matching invoices to inventory, businesses avoided taking risk altogether leading to fall in overall economic activity. Multiple return forms at regular intervals also necessitated seeking help from professional accountants, thus increasing costs for a business. As this piece outlines, the GST has made an enduring alteration to the nature of small and medium businesses effectively dealing them a deadly blow.(https://www.livemint.com/Opinion/vlRdwQz1LHiQDna3ce1DPJ/GST-features-contributing-to-GDP-growth-slowdown.html .

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