In the Book of Genesis in the Hebrew Bible, Saint Joseph says, “But when the crop comes in, give a fifth of it to Pharaoh. The other four-fifths you may keep as seed for the fields and as food for yourselves and your households and your children.” While the Pharaohs have given way to the Government (that’s easy), the ‘one-fifth’ has become a ‘one-third’ (almost)! But interestingly, what St. Joseph says is equally relevant in the context of indirect taxes as well – paying a part of the produced goods to the governing authority in one’s state.
Today, the stage is being set in India for the Goods and Services Tax (GST) regime to be launched from the next financial year; positioned as a tax reform to make life easier for consumers as well as producers. More importantly, it is supposed to enable the government to play its Big Brother role much more effectively, by ensuring that tax theft is minimised. But is it really going to benefit Indians like it promises to?
The introduction of the Value Added Tax (VAT) regime in the country in 2005 was cited as a watershed moment in modern India’s post liberalisation history by legions of experts and it has indeed paid dividends. The combined Central and State tax revenues registered a leap in the very next financial year post VAT introduction, and have followed the new trajectory ever since. The tax to GDP ratio, a critical indicator of the fiscal health, has also shown similar jumps over the last 3 years over earlier periods. Now, with the upper echelons of the government setting the ball rolling for the introduction of GST, the frenzy on its far reaching consequences in transforming India’s economy has reached fever pitch. But a reality check reveals a rather crooked picture.
As declared in the Budget speech this year by the Finance Minister Mr. Pranab Mukherjee, the GST will be imposed as a dual tax by the Centre as well as the states and it will do away with the Central Sales Tax (CST). At the same time, it brings services also into the ambit of the states’ taxation under State GST. This makes it imperative that the ‘timing’ and ‘place’ of supply of goods and services must be recorded and monitored constantly, especially in the case of services.
Today, the stage is being set in India for the Goods and Services Tax (GST) regime to be launched from the next financial year; positioned as a tax reform to make life easier for consumers as well as producers. More importantly, it is supposed to enable the government to play its Big Brother role much more effectively, by ensuring that tax theft is minimised. But is it really going to benefit Indians like it promises to?
The introduction of the Value Added Tax (VAT) regime in the country in 2005 was cited as a watershed moment in modern India’s post liberalisation history by legions of experts and it has indeed paid dividends. The combined Central and State tax revenues registered a leap in the very next financial year post VAT introduction, and have followed the new trajectory ever since. The tax to GDP ratio, a critical indicator of the fiscal health, has also shown similar jumps over the last 3 years over earlier periods. Now, with the upper echelons of the government setting the ball rolling for the introduction of GST, the frenzy on its far reaching consequences in transforming India’s economy has reached fever pitch. But a reality check reveals a rather crooked picture.
As declared in the Budget speech this year by the Finance Minister Mr. Pranab Mukherjee, the GST will be imposed as a dual tax by the Centre as well as the states and it will do away with the Central Sales Tax (CST). At the same time, it brings services also into the ambit of the states’ taxation under State GST. This makes it imperative that the ‘timing’ and ‘place’ of supply of goods and services must be recorded and monitored constantly, especially in the case of services.
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