'Otherwise, how is the government going to make more revenue?'
'The most important thing the GST does is to transfer money from household consumers, who are the most productive users of capital, to the most unproductive users of capital, namely the government.'
In an exclusive interview with Rediff.com's Shobha Warrier, M R Venkatesh, chartered accountant and commentator on business issues (seen, below) rips apart the belief that GST will increase India's GDP by 2 per cent, that it will lead to the ease of doing business, that GST will lead to one nation, one tax.
After passing the GST Bill, the prime minister said that tax terrorism was now over. In our last interview you told me that the GST Bill would be a self-goal by the BJP. Do you still feel so?
On the broad aspects of the GST, there are no disputes in the sense that this has been debated for a decade. But the argument that this is the one shot that can stop corruption, generate revenue for the government while keeping the inflation down, is mathematically impossible.
If the government is going to get more money, the prices of things have to go up, which means it is inflationary. If inflation is controlled, the government will get less revenue.
If you want to marry these two, you have to bring in a large number of people into the GST net who are now not there like even the chaiwallah, the panwallah, etc.
This means you are going to irritate a large number of people who are not in the tax net -- I am not talking about tax evaders, only those who are not in the tax net.
So nobody knows how the future will pan out given the propensity of our bureaucracy and judiciary to complicate things when none exists.
I would say we have oversold on this issue of simplification of tax.
Simplification is the word used by all. They say from ease in doing business to cutting logistic costs, everything will be easy as it is one nation, one tax, and not multiple taxes at various levels.
I wish all of them well! No tax law can be simple; there will be assessment, reassessment, tribunal, high court, Supreme Court, and authorities. It has layers and layers like in onions.
Then, we have to see how each state will look at the definition, how they will administer.
As a practitioner of tax, I can tell you with reasonable amount of assurance that there is no simple tax. It is like having hot ice cream.
If there is going to be a central GST and a state GST, how can you call it one tax, one nation?
It is still unclear. There is a centrally administered tax. But then what will happen to the VAT department in the states? That is why the experts are of the view whether the GST altered the basic structure of the Constitution.
In what way does it affect the Constitution?
In the sense that the states are giving away their rights to the Centre by surrendering 17 to 18 taxes for GST. Those were the rights given by the Constitution to the states.
Is it because of the federal structure that they are talking about a central GST and a state GST?
That's only the taxation portion and the Centre will administer the tax. The excise and customs tax administered by the Centre will become part of the central GST and the state levies like VAT, luxury tax, octroi, etc will also come under the GST.
The states have given away their rights and the Centre only will tax. Suppose, (if) the rate is 20 per cent, (then) 10 per cent will go to the Centre and 10 per cent will go to the state.
But the question is: Whether the states have the right under the Constitution to give away their rights, whether their right is tradable. This is one of the reasons why Jayalalitha's AIADMK walked out of the Rajya Sabha. Tomorrow, the Congress, which has agreed for all this, can go to the Supreme Court and raise this issue.
You mean, the government has not thought about the Constitutional aspect while drafting the GST bill?
They would have definitely thought about it. You cannot be thinking about everything at one point; you can cross the bridge when it comes. I am saying there is a challenge out there. The rollout may not happen by (April 1) 2017 if somebody gets a stay in the Supreme Court.
The basic question now is, whether we are going to have GST at 20 per cent or 16 per cent or 24 per cent.
All the states except Tamil Nadu supported the GST. Manufacturing states like Punjab, Haryana, etc also agreed except Tamil Nadu. They say they are going to lose money because of GST.
There is nothing called a manufacturing state or a consuming state. I don't agree with the terminology that Tamil Nadu is a manufacturing state.
But Tamil Nadu is a huge service state. Till now, service tax was not levied by the state. But after GST, Tamil Nadu is going to get huge amount of revenue from services.
Won't services which make 60 per cent of the GDP be hit by higher taxes and affect growth?
All the services which we consume from the doctors to lawyers to autorickshaws to logistics to restaurants are within the state only. How many of your services come from the Centre? Generally you get all the services in the local area only.
That way, the revenue of all the states will go up because they have the right to tax all the services through GST.
In the case of manufacturing, large players like an automobile manufacturer like Maruti may require auto parts from Tamil Nadu or any other state may benefit, in the sense that those players who deal with different states do not have to pay multiple taxes.
Is that why they say that the prices of cars, scooters, SUVs, etc will come down while the prices of services will go up?
Yes, when you buy an SUV, the price will be less, but your cell phone bill, restaurant bill, etc will go up.
Does that not mean the consumers like you and I will be the losers in the end?
It could be. It could not be. We do not know. The government has not done a single study on the impact of GST on people, to validate any of the questions satisfactorily.
We wasted the last 10 years not doing that. When the UPA (United Progressive Alliance) was finalising the bill, not a single study was done to find out how it will aid 2 per cent growth, how it will be anti-inflationary, how it will help consumers.
We, the chartered accountants, say the devil is always in the details of any tax law. It all depends on how they are implemented.
Your bureaucracy and revenue officials are bloodhounds and unfortunately they continue to be bloodhounds even after the GST comes in. I am very sceptical about the talk about ease of doing business.
I am also worried about another factor. They may fix Rs 10 lakh (Rs 1 million) as the threshold limit and suppose you make a turnover of more than Rs 10 lakh, you come under the GST regime.
But today, for the small scale manufacturing industries, the exemption limit is up to Rs 1.5 crore (Rs 15 million) and 90 per cent of our consuming items come from these small manufacturers. Now, they will all come under the GST bracket.
Does that mean small and medium businessmen will suffer?
They will not suffer. They will collect from the consumers. That means the prices of the small items you buy from local manufacturers will go up by 20 per cent.
So, it is a bad scenario for all consumers, the ordinary people...
If the government is going to earn more revenue, we are going to pay more, and our savings rate will come down and also our investment rate.
The huge question mark is: How then will the macro economic matrix pan out?
Does it means the multiple layers of the impact of the GST will be known only later?
Yes, I am not sure how the rollout will be, and what the impact will be. I am only talking technically putting together all the anecdotal references.
Suppose the rate is fixed at 12 per cent, probably all of us may not feel the pinch and the rollout may be smoother.
Don't you feel we have a right to know how it will impact us?
Yes, the nation has not been prepared. The nation wants to know the impact of rollout (of GST).
When China joined the WTO, they made 1 billion pamphlets and distributed among all the people. That was Communist China informing people that they were joining the WTO. And this is democratic India!
Here, we have so many people talking. Economists are saying GST will be anti-inflationary, GST will improve our ease of doing business, GST will bring in revenues. If you ask how, they are not able to convincingly explain.
If the large chunk of India's population is going to pay more for what they buy, if people are going to have less money in their hands, is it not bad news for the BJP?
Politically it is a worrying factor. Whether those in Delhi understand what happens in Ahmedabad or Thiruvananthapuram or Lucknow is a billion dollar question.
I don't know whether an Impact Assessment Study was done by the BJP or the NDA so that they could debate the political dimension of the GST. Did they find out whether the impact is going to be positive or negative?
And if they think it (the impact of GST rollout on voters) is going to be politically neutral in 2019, it is wishful thinking.
M R Venkatesh's photograph: Sreeram Selvaraj