Low growth + high inflation + govt doing RBI’s job = recipe for crisis – Times of India

Clipped from: https://timesofindia.indiatimes.com/business/india-business/lets-keep-gst-good-simple/articleshow/91693650.cms

Many of us would recollect pre-GST days where all products would either have a price excluding local taxes or have multiple prices applicable to a band of states. This was primarily on account of VAT and other local taxes and municipal levies such as Octroi and Entry Tax, which were divergent across states.
While consumers were unable to get an all-inclusive price for products on the product pack, manufacturers had to also factor in the cost of setting up a warehouse in each state to avoid paying the central sales tax, despite logistic considerations frequently not justifying a warehouse. Supply chain planning for corporate India prior to the introduction of GST in 2017 was driven more by the differentiated local tax structure in each state and less by demand and ease of fulfilment – factors that were primary in the developed world.
GST meant that for consumers, every product would come with one all-inclusive price mentioned on the product pack without any caveats. From a supply chain perspective, it meant that demand forecasting and fulfilment would need to be undertaken from a market and consumer base standpoint and not from a tax standpoint, as the tax for a specific product was identical across states.
This uniformity was achieved by a constitutional amendment leading to the GST legislation and its implementation was overseen by the GST Council, which is headed by the Union finance minister and comprises all the state finance ministers.
The GST Council has met 46 times till now and its decisions have largely been unanimous, indicating a high level of fiscal maturity and understanding between the Centre and states. It is also understood that while some states have had divergent viewpoints on some issues, the Council however has been effective in balancing the interests of the Centre and the states, dealt with various implementation issues during the past five years and ensured that the overall aim – a common indirect tax across the country – is not diluted.
The concern after the SC decision is whether various states will now begin pulling in different directions taking indirect taxes back to the VAT era.
The SC decision comes at a time when states have been very concerned about their ability to manage their fiscal situation once the compensation cess provided to defray revenue losses on account of GST comes to an end in June 2022.
Suggestions by states to increase the period of the cess by two or three years, have not yet elicited any positive response from the Centre. In this situation, and given the SC ruling, there is concern on whether the level of uniformity in GST legislation across states, presently in force, will continue in future.
However, while there is certainly a need for more clarity on the issue, there does not appear to be any reason for immediate alarm. Outcomes of GST Council meetings have largely been implemented by all states till now. Also, central and state governments have been on the same page in implementing the decisions taken by the Council. Both the Centre and states have worked on GST in a spirit of cooperative federalism and the uniformity in GST laws across states has benefited both consumers and manufacturers.
What we need right now is a restatement of the principle of ‘One Nation, One Tax’, that it won’t become a ‘One Nation, Many Taxes’ situation all over again.
The Good and Simple Tax, which heralded many other business reforms, should now move further along the path of procedural simplification, improving the ease of doing business. It is in essence a tax collected from consumers by businesses and paid to both central and state governments. Therefore, collective views of both consumers and businesses should be duly considered before considering any changes in the GST decision-making framework.
The writer is Partner, Deloitte India. Views are personal

Illustration by Ajit Ninan

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