GST – Phase 2

We know how things work in India – you try to spend years, often decades in a vain hunt for the holy grail of any law or reform move. By then costs mount, direct and indirect, but who cares? Because the poor beggar whose son grows up to be a beggar & is doomed to poverty all his life will not connect his misery to delays in implementing GST or getting that airport built.

But then after all this delay, finally when things get done, they don’t show the perfection expected of such long effort. It as if Kamal Amrohi spent 20 years making not Pakeezah but some usual Bollywood masala trash. This is because the exact same issues that kept the process tortuous have not vanished but have simply resulted in compromises and optimisations that almost manage to defeat the purpose.

Strangely, all of the above applies equally well to other divisive democracies with distributed powers like USA. But then they are rich and can do with lousy healthcare law or Sarbanes Oxley sort of nonsense but we cannot afford to do so.

As far as India is concerned, this is true whether Congress, BJP is in power directly or through messy coalitions.

But then the mere fact that reforms get done in of itself is a major achievement that cannot be underplayed. In fact, that is the only way things can get done. You can wait for perfection another 20 years, and it aint gonna happen.

That is the story of GST too. We cannot stop congratulating and thanking Jaitley, Modi & Co for getting it done. No mean achievement.

What next?

But having done that and benefit of hindsight what else can be done? After all the present law is merely a first step in a long journey.

Arvind Datar and Vaitheeswaran (Indian Express, 28 Sep 2017) have written an excellent piece on this topic and instead of the usual nasty sarcasm, useless criticism and agenda driven venom that passes for journalism in India these days, have given sensible suggestions that is almost a to-do list. Hats off.

Similar sentiments were expressed in our earlier article on this topic – link here.

Adding to the excellent to-do list mentioned above we would suggest the following

1. Get contiguous BJP ruled states to go whole hog and include petroleum, real estate and whatever else is left out into the GST net. That is almost all of India these days! This creates competitive pressure on rest to reform or literally perish as businesses votes with their feet. This is a lot faster than arguing with megalomaniacs and anarchists like Mamata Banerjee & Arvind Kejriwal who will never agree to anything sensible just because it came from Modi. We say contiguous because goods can freely move (with necessary input credit) without having to cross a non-compliant state.

2. Announce that for the first one year, there wont be any penalties (beyond recovery of tax due) on anything other than wilful and wanton tax evasion, that too narrowly defined and clearly listed out.

3. Give taxpayers option of accelerated refunds with the condition that should they prove to be cheats, the law will come down on them like a ton of bricks. Yes, this may expose the revenue to some risks but the benefits will be considerable too. Known offenders, tax defaulters can be left out.

4. Go easy on minor delays in filing other returns such as Company Law, Income Tax etc. because the same bunch of people (Accountants, CAs etc) that are busy decoding GST also are responsible for those tasks and must be tired and exhausted. Remove useless returns, forms, filings that waste time and don’t bring any benefit to any stakeholder. In fact a general amnesty in that direction announced ahead of time is a great PR move and costs nothing.

5. Study the GST credit system of Singapore where ordinary poor (by local standard) taxpayers were given money for first year or two. Nothing works like free money to soothe irritated public mood. It need not be substantial but should not be trivial.

6. Make small but effective steps towards single rate, each month, every month. No need to wait for big bang reforms and endless arguments. Perhaps a good start is Pistachio, Cashew, Almond and Walnut all of which have different rates as one wag pointed out!

Reform is not easy. But rewards can be huge. Indian voters have shown this many times.