India implemented its biggest tax reform for a century with the introduction of a common indirect tax system across the country with GST from 1st July 2017. The last few months there have been many discussions about the tax, its benefits and its negatives. I had nothing to add to the conversation as the discussions in social media about GST was mostly political or economic – two areas I have zero knowledge. This week I came across this post in Medium (which was earlier published in The Hindu Tamil Newspaper) by my fellow entrepreneur from Chennai Suresh Sambandam, who is the founder of Orangescape, one of the earliest cloud companies. With a title “GST and bleak future of state politics“, an opinion I disagreed, I felt I had to join the conversation. Below is my response that I posted in Medium:
I will start by saying I would like to disagree. GST is a much-needed reform for India. The way it is implemented right now is certainly NOT perfect, I will argue that the GST Council should’ve been more aggressive bringing in Petroleum and Alcohol too. Especially I have problems with the 6+ slabs and myriad returns to be filled. Even with that, it’s a great unifying act showing our political parties in Centre & States can get something “useful” done.
I am not an economist or statistician, but I feel the collections from GST over the years will be more than expected and the windfall due to more coming under tax umbrella will benefit the country immensely.
The other benefit is the removal of state border check posts. It takes over a week for a truck to travel from Kolkata to Mumbai, and it goes through 20+ check posts. Each check post adds no “real” benefit to the state or the people, other than enrich the authorities manning the check posts through Bribe.
I believe in less Government, less process and forms, more of automatic audits, strict penalties & speedy justice. GST is a step towards that. Yes, the first 2 years will be a choppy ride. Even the authorities have little understanding and that’s expected for any new law. The way our lawmakers write laws in the country, leaving ambiguity all the way (many times you wonder they do it for selfish interest), the GST laws will get clarity only after few judgements from HC and SC come out.
With GSTN we have a central database/system capturing almost all business transactions across the country. A never before gold mine of data. Anything that required physical check posts and laws can be now done automatically. No need to have 1000s of Government employees, offices and pensions to spend. States will have more visibility on what’s really happening on the ground and react with corrective measures in real time.
Not everything needs to be done only by tweaking tax rates. The idea of preferential tax treatments inherently is a honeypot for favouritism and corruption. If say Tamil Nadu or Bihar wants to attract investments and industries it can create a healthy environment with access to water, uninterrupted power, transparent land procurement, simple labour laws and efficient bureaucracy. Over last many decades, most state governments didn’t care to reform any of this but went easy by doing tax-breaks. GST will end it, forcing them to improve their act.
While we really don’t know the minutes of meetings of GST Council, as per press reports, almost all decisions and rates were decided unanimously. I would like to see this as a positive sign showing federal system at play.
Lastly, no law can root out corruption and all evils that plaque our Governments. As an optimist, I will like to see GST to be the first step towards a better tomorrow.