Why Congress would want GST to be implemented by BJP only after 2017


However, despite all the noise around the centralised tax being good for the economy, Congress would want that BJP to implements the GST, but not before 2017.

Let’s start with some facts. No government across the world has been re-elected after they implemented goods and service tax (GST). Not just that, the benefits of the GST were always reaped by the succeeding government.

In India, all the earlier governments from the NDA led by Atal Bihari Vajpayee in 1999 to UPA (1&2) led by Manmohan Singh had plans to implement goods and service tax (GST). It’s a surprise then that even in 2015; Narendra Modi has to go out of his way to woo Sonia Gandhi and Manmohan Singh to support the GST Bill.

However, despite all the noise around the centralised tax being good for the economy, Congress would want that BJP to implements the GST, but not before 2017.

In the long run, GST could boost (and would boost in all probability) India’s gross domestic product ( GDP) by anywhere around 1.5% to 2%. Yet, there is a huge drawback of GST. In the short run—that is initial two to three years—GST would trigger inflation. Everything from your groceries to your movie tickets would become more expensive by anywhere around 5% to 8% (assuming GST is at 18% to 22%)

So if the Congress manages to stall GST until 2017, there would be a spike in inflation till 2019. And the Congress could easily blame the BJP for the inflation and hope to score politically in the 2019 elections. After all it would be tough task for BJP or any other ruling party to explain to the voters that the inflation is a result of GST and not mismanagement. Not just that, if by a miracle, Congress manages to pull this off and form a government in 2019; even if it doesn’t do much, the growth would start (of course ceteris paribus) by 2020.

How GST works:

Simply put, GST is a nationalised tax, which would remove all (almost) other indirect taxes. How it works is that the government would levy a unified tax on all goods and services across India.

What this would mean is, whether you manufacture a car in Maharashtra or in Assam, the tax paid would be the same. There are a lot of benefits of GST, which includes the unified tax regime across India and reduction of black money.

Currently excise duty is collected by the states where goods are manufactured and not where the goods are consumed. This means some states keeps becoming richer by dishing out sops for manufacturers, while the poor states remain poor. Under GST, the benefits would be passed on to the states where the goods are purchased (or consumed) and not where the goods are manufactured.

Also currently there are many different taxes; service tax, sales tax, VAT (value added tax), entry tax, entertainment tax and others. All these taxes are administered by different administration and there is lack of communication between these departments. Currently, many companies maintain a different account for sales tax, for excise and for income tax. These companies try to exploit the situation and pay minimum taxes. This is impossible under GST as there is a unified tax, hence tax collec ..

Also the system would monitor those who evade taxes. “For every product manufactured there is going to be a bill of material. Say for example, what are the inputs going in to manufacturing a chair? Leather how much, plastic how much, the leavers etc. So when this material is procured it would be mapped out what are the taxes paid on each of them. Once its manufactured entire chair is manufactured entire tax paid on the raw material would be credited back and only the final product would be taxed .As a result only the value addition at every stage. Which means no one would be able to evade 100% tax as it’s paid in stages by different people. And if the person caught evading the tax will have to pay five times the penalty. So the risk reward ratio will not favour the tax evader. The system would police itself till the goods reach the consumer. And the government will have details of each tax payer’s details along with the taxes paid on each stage along with a unique number allotted to the goods. So evading taxes would become tougher,” Sachin Menon chief operating officer, tax and national head, indirect tax, KPMG had told ET earlier in an interview.
However, under the GST the manufacturers or those providing services (consultants, CAs etc) can also pass on all costs to customers (as all indirect taxes could be charged) including simplest costs like furniture bought or electricity bill. This would make the cost of the goods and services increase. This could lead to increase in costs. Not just that, for the whole tax system to move from one form to another takes time. Companies have to calculate their costs differently, manage their warehouses differently among other things. This takes time and creates chaos.
Malaysia implemented GST from April 1, 2015 and has seen a huge jump (2.5%) in inflation.

Yet, the short term pain is outweighed by the long term benefits. As cost of goods and services increase, so do the margins for manufacturers and service providers. This means those with capital would want to invest more. In the long run as more manufacturers and service providers compete for the same customers, the prices would come down, so would the inflation. And bingo; you have higher GDP and reducing inflation.

But to complete this circle; it would take anywhere between 2-3 years.

Will NaMo rise to the challenge?

There is a huge probability that if the BJP government implements GST by 2017, the inflation would increase. This could irk the voters and they may chose to reject the BJP for the high prices.

Yet, starting 2019 the growth would kick start, jobs would increase and the black money would find its way in the Indian economy. Just that BJP may not be in power to reap the benefits.

The huge question now is, would Narendra Modi and the BJP want this? To implement the GST in 2017 or in 2018? Because Congress would definitely want this and would do everything in its power for this outcome.

In the past all the governments have stayed away from implementing GST for the same reason. But will Modi like the Batman become the hero that India deserves? It’s a long term game, over the short term pains, the future holds the answer.

(Views expressed are personal)

Source: http://economictimes.indiatimes.com/news/politics-and-nation/why-congress-would-want-gst-to-be-implemented-by-bjp-only-after-2017/articleshow/49980896.cms

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