GST Will Not Change India

It would be foolish to deny the benefits of the landmark legislation for the business community and in terms of administrative streamlining, but more foolish still is the notion that it is going to radically change India’s growth story.

The passage of the much-debated, much-awaited Goods and Services Tax Bill in both Houses of the parliament has divided and inflamed opinions in a way that leaves no room for doubts about the significance of the legislation. The tortuous passage of the GST Bill has been declared as a political victory for the ruling BJP government a declared as the biggest reform in post independent India that turns the country as one big market with one tax system. However, naysayers, denounce it as a body blow to federalism, a death knell for the manufacturing states, and a move that in all likelihood will have no positive effects on growth or inflation. Worse, it is seen as a bill that will help the fat cats and leave the poor and impoverished what the hell the fuss all about.The fundamental idea behind GST is simple enough: remove the distortions within the existing Value-Added Tax regime like customs duty (a Central levy on products imported from abroad) and entertainment tax (levied by States) do not come under the VAT umbrella. At the Central level, ‘goods’ and ‘services’ are treated as separate entities. The former are subject to different rates on the basis of whether they are MRP or non-MRP goods; the latter is a Union monopoly.

Not only do these distinctions contribute to the complexity of the tax regime, they are often invalid. The line between ‘goods’ and ‘services’ is by no means a clear one, particularly in the age of information technology, when, to illustrate, a software update could be a discrete product (a good) or a part of a maintenance package (a service).