A high-five for GST? Not really

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Time flies. It is five years since the historic indirect tax reform, the Goods and Services Tax (GST) was introduced with flamboyant theatrics by the National Democratic Alliance (NDA) government.

In trying to replicate the epochal Independence Day of August 15, 1947, by using the midnight hour allegory, the Bharatiya Janata Party (BJP) led by Prime Minister Narendra Modi was invoking financial nationalism, ‘One Nation, One Tax’. Trust me, in India everything, particularly economic policy that has retail implications, must have a political connotation.

The GST had indeed become a loaded political vehicle, having been tossed around contumaciously for several years since first introduced in Parliament by the Congress-led United Progressive Alliance (UPA). Among those who stubbornly opposed it was Modi, now its principal protagonist.

The leitmotif that accompanied the GST getting parliamentary approval was “co-operative federalism”; in short, it was an apposite manifestation of both central-state role in reforming an archaic tax regime that had graduated to Value Added Tax (VAT), which would benefit all, particularly the taxpayer.

The politics behind it is germane, though, as the fifth anniversary of the GST coincides with the collapse of Uddhav Thackeray’s Maha Vikas Aghadi (MVA) government in Maharashtra. It need hardly be explained that an internal bickering within the Shiv Sena resulted in a choreographed collapse of the MVA government through magnanimous motivation from the BJP.

Co-operative federalism, ladies and gentlemen, is as yet just an intellectual fantasy. The GST has functioned without bipartisan collaboration, with the palpable arrogance of the Union government the biggest insurmountable roadblock. I will return to that later.

Truth be told, it would have taken monumental incompetence to make the GST into a red-tape poltergeist. The early days were a migraine-inducing nightmare though, as clearly a government driven by image-building and a PR exercise, had not done any homework on its technological robustness, and operational imperfections. The result was an awful double whammy of sloppy execution of the GST, and the lingering devastating aftermath of the demonetisation, which severely crippled the economy.

If the GST has since stabilised, it is because humanity learns through trial and error; but we could have avoided several technical goof-ups and labyrinthine processes particularly for the MSME (Medium, Small and Micro Enterprises) sector if the GST had been initially implemented as a pilot project.

Of course, the GST collections have since soared as high as Rs 1.68 lakh-crore in April 2022, as the economy slowly rebounds from the pandemic’s destruction. The pandemic unwittingly also hastened the adoption of modern technology applications, and that has contributed immensely to the rise of the tax-base. The e-way bills (2018) and e-invoicing (2020) were steps in the right direction to ensure transparency, speed, and impeccable reconciliation of tax credits. Yet we have concomitantly experienced the rising incidence of frauds and fake invoices, as professional heisters have gamed the system.

Furthermore, complex or amorphous legal provisions only accentuate disputes. Consequently, litigation is rising at an alarming rate, which is hardly business friendly. Yet the government remained blissfully nonchalant about troubleshooting.

Several years later, we are yet to see a GST Appellate Tribunal which is mandated as per law. The government which usually railroads itself when it suits it, has allowed tax disputes to mount disconcertingly by its inexplicable torpor. This is perhaps among its biggest failures in the last five years.

It eventually was left to the Supreme Court to pass a watershed judgment on the federal structure of our Centre-state relationship by categorically articulating that the GST council did not have unilateral authoritative powers to impose itself on the states, who possess their own legislative freedom to exercise tax decisions. Shared sovereignty sounds good in theory, but the fractious Centre-non-BJP ruled states equation sends wrong signals. A legitimate question to ask is why is there such an inordinate delay in appointing a vice-chairperson to the GST council?

While doubtlessly tax compliance has improved on account of rising digitisation and improving coverage, at best, India’s track record has been mixed. Multiple tax slabs remain, which are contradictory to the quintessential GST credo: simplicity. As the recent confrontation over high petroleum goods prices was triggered by the Prime Minister himself who disingenuously blamed the states, why does the government not incorporate petrol/HSD/LPG, etc. under the GST?

In short, we still have a long way to go, albeit we have made some progress for sure. But as the recent GST on essential food items (flour and rice, for example) show, India needs to remember that the GST is a regressive indirect tax that exacerbates income inequalities. It is the buoyancy in direct tax collections that truly reflects an economy’s flourishing constitution. Or heft. But that we can discuss another day.