(This article was first published on August 15, 2016, and has been republished today, i.e. 26.06.2017, with slight modifications)
GST stands for Goods and Services Tax. The other three terms in the same realm are Value Added Tax (VAT)/Sales Tax and Service Tax. All these are indirect taxes, which are collected by the business from the end consumers and paid to the government. There are other indirect taxes like Octroi/Local Body Tax (LBT), Excise Duty/CENVAT, Entertainment Tax, Customs Duty, Securities Transaction Tax, Luxury Tax, Stamp Duty, etc. These taxes are levied at different levels. Some taxes like Octroi/LBT are levied by the local governments; some like Sales Tax (interstate trade by the central government), Excise (liquor by the state government), etc, are levied both by the central government and the state government; some like Stamp Duty, VAT, Entertainment Tax, etc, are levied solely by the state government; and some like Service Tax and Customs Duty are levied solely by the central government. These taxes are also levied at different rates depending upon the product; for example, there are four different excise duty rates; i.e., 0%, 4%, 12.36% and 27%.
What GST proposes to do is to merge all these taxes into a single rate structure either as a single GST or as a dual GST- mostly it would be dual GST. I think variety of indirect taxes like Entertainment Tax, Stamp Duty, Luxury Tax, Octroi/LBT, etc, will continue to be levied and won’t fall within the GST structure. The Basic Customs Duty would also remain outside the purview of the GST. The only consolidation I see happening is that of VAT/Sales Tax, Cenvat/Excise Duty and Service Tax into a single structure. But I can’t understand how a single tax structure with a unified tax rate helps a common man. He would rather like to have differential tax rates for different commodities, so that obnoxious items like cigarettes, junk food, cola, etc, can be taxed heavily.
The PM says introduction of GST will end “Tax Terrorism” — what he means by it, he only knows; it seems he has come to terms with the fact that this government is being run by …….. Anyways, ignoring the PM and his unique lexicon, the business is happy because they would spend less on CA fees — I don’t see any other direct benefit accruing to the business.
But the losses to the consumers especially the poor are many. A lot is being said that GST will avoid double taxation which will benefit the end consumer. Two types of double taxation is being talked about: levy of Service Tax and VAT both on the same transaction, and levy of CENVAT and VAT both on the same finished product. Both the arguments are fallacious. As far as the levy of Service Tax and VAT is concerned, it is covered by the judgment of the SC in BSNL V. UOI, 2006(3)SCC1, wherein it has been held that the same activity can’t be regarded as both goods and services, and thus either Service Tax or VAT, not both, would be applicable on the same set of transactions. As far as levy of both CENVAT and VAT is concerned, it happens only in few cases and at the stage of the finished products, which are transferred to the wholesalers. The wholesalers don’t get the CENVAT credit for the CENVAT paid by the manufacturer. At all stages before that, the CENVAT credit is available. If the dual GST is introduced, which in all likelihood it would be, the double taxation would still remain, albeit now it will extend to all stages post production; i.e., factory sales, wholesale sales, and retail sales. This basically means that at each stage post production, the central government will start levying an additional tax as Central GST, which was not payable earlier, the total tax payable by the end consumer would obviously be much higher, for he won’t get any tax credit for the GST paid before and would be levied GST at much higher rate. And if a single GST is introduced, the rate will be fixed much higher, say even at 20%, which would increase the burden of the end consumer manifold. They say the tax burden will be lower eventually after few years when the product prices will fall, which “after few years” will obviously never happen. Therefore, it was extremely necessary to fix GST rate caps in the Constitution itself. Actually, this government has been preparing the people for higher indirect taxes ever since it took office. In the last two years, the VAT has risen to 14.5% from 12.36%, and service tax has been increased even higher to 15%. Of course, they will increase the GST rate to much higher levels than the existing VAT/Service Tax rates. And this is the indirect benefit that the business has been looking out for. They wanted to shift the burden of taxation from direct taxes to indirect taxes. Direct taxes are levied the most on the rich, especially the corporate, and the least on the poor. Whereas, though the rate of indirect taxes is same for both the rich and the poor, it burdens the poor the most as larger pies of their incomes go into taxes than that in the case of the rich. Therefore, indirect taxes are called regressive taxes.
The second indirect benefit to the business is that of integrated market of India, and they call it “national integration”, as if the Maoists would integrate their taxes into the GST. I am unable to understand how the taxes levied on poor people by the State become the matter of “national integration”? Are you saying the more you suck out of the poor, the lesser they will rebel? If that’s your idea of “national integration”, you are unnecessarily making so many efforts. Your AADHAAR numbers have already enslaved the people across India. On second thoughts, the …….. are not so dumb as I think them to be. They have already incorporated the benefit of AADHAAR into the GST. Let us guess how.
The section 7 of the AADHAAR Act makes possession of AADHAAR number mandatory for receipt of any benefit or service for which the receipts therefrom form part of the Consolidated Fund of India. All tax receipts go into the Consolidated Fund of India. Tax payment and/or collection can be interpreted as a benefit and/or a service under the Act (in spite of taxation being considered as sovereign function of the government; the judiciary is innovative enough to make exceptions). In effect, any financial transaction which levies a tax would require possession of an AADHAAR number. Eventually, quoting of AADHAAR number would be made mandatory for carrying out any financial transaction whatsoever because it would always involve some collection of tax or the other in each financial transaction. Multiple taxes levied at multiple levels at multiple rates would have obviously made integration of AADHAAR into the tax structure impossible. But now with the GST, it becomes very easy. The PM, the HM, the Revenue Intelligence, the IB, the RAW, the MI, and the select corporates would certainly have access to individual records collected under the GST and AADHAAR. And those who understand data mining can well guess what kind of control these above mentioned entities can exercise over individuals with all this data.
So, that’s the true “national integration” that the government and the corporate are vying for. But this competition is so very easy. The non-elites can’t even distinguish between the self-goal and the rival-goal; so, they are hitting self-goals after self-goals. But I wonder what would happen if the people recognized their goals and the goal posts. Will the government then call scoring goals against the government a benefit and block their AADHAAR cards for non-payment of the GST! Or, better still, call it a threat to “national integration”!
Copyright 2016-2017 Ankur Mutreja
Feature Image Credit: CA Gaurav Gupta (https://te.wikipedia.org/wiki/%E0%B0%A6%E0%B0%B8%E0%B1%8D%E0%B0%A4%E0%B1%8D%E0%B0%B0%E0%B0%82:GST.png)