Let us come straight to the point! Why do we say this?
Many countries implemented GST. It is not as if their economies were magically transformed. But then each one does so for their own reasons and have their own unique circumstances.
For Singapore (to take one example), it was the desire to reduce Income taxes and yet retain revenue buoyancy. This was a key USP when it competes with the likes of Hong Kong where taxes are lower. Prior to that, Singapore had no taxes on sale at all, barring sin goods.
For India, the key benefit is reducing tax evasion and bringing almost all economic activity into the tax net. Perhaps no other country implemented GST with an economy like ours where most activity is outside of the tax net.
This is why it is going to be a game changer. Nothing else (imperfect rates, complexity, too many forms, returns blah blah blah) matters. Just this one factor alone will more than justify these compromises and sub optimal choices and bargains to get the thing going.
Right now most small traders don’t pay any tax. Nor do they issue any receipt. This means their entire income is “black”. This evasion cascades up and down the supply chain – the trucker who delivers the items, the landlord who collects rent, the wholesaler who sells to the trader and so on, all get paid in “black” and in turn pay others in black. You get the drift..
In other words, for each tax evader enjoying himself, another “idiot” pays the price. In fact many have to pick up the tab. This is the exact feeling of many in salaried class who are forced to pay tax on their actual income while the trader or contractor next door pays zilch and openly flaunts his wealth.
If this changes (yes, it will not change overnight) that’s a HUGE gain for India. We may not need 28% or even 18% rates for most items.
It will also make the traders and other businesses confident and bold because they don’t have to pay bribes through their nose on daily basis and live in fear of raids and harassment. Check my books – they are clean! They can invest, expand, hire more staff and kick start the economic engine held down by bad loans and UPA’s loot. It also levels the playing field so formal retailing can expand and bring benefits (better paid staff, better quality control, cash free payments, the list is endless). Salaried class can look forward to lesser direct taxes.
In fact even on Day 1 many have proudly posted their GST paid receipts on Twitter – showing tax collected and paid by vendors who never did so earlier! Here’s a sample
— sujeetpillai (@sujeetpillai) July 1, 2017
In fact the doomsday prophets are having a tough time because even dhabhas, shop keepers and supposedly illiterate vendors are issuing GST invoices, right from midnight on 1st July! A few that are used to old ways are going on strike in their usual ways, but this is one tsunami that is not going to roll back for them.
We are on to something HUGE. The benefits are clearly under-estimated. Don’t get us wrong. Modi and his government may mishandle the implementation and may even pay a price in 2019. We frankly don’t care. That is besides the point. But it will settle down one day and improve with time.
Looking at Indian economy as a whole this will be the day that will be celebrated by our children and their children as the day India changed.
You heard it here first!
Comments are welcome.