Belated reaction

Goods and Services Tax continues to rankle several sections in the country and the latest to join the chorus of voices protesting the same is the TDP, which says there are flaws in it and people are being put to hardship.

At one of the conclaves here recently, Bibek Debroy asserted that “only 6 or 7 countries, not more than that” have implemented GST. Debroy also asserted that before India, “only country in the world which is federal and has GST is Canada” referring to suggestions that at least over 150 countries have already implemented it.

Why are new voices being heard against the GST now? Is it purely political or otherwise? However, the fact remains that GST, whenever and wherever it was introduced, led to inflation initially, at least for a year, and only later it got subsided. It is a kind of course correction that it does to the economy, perhaps.

Those opposing it should not forget this factor. When France was the first country to introduce GST in 1954 it was thought that it had managed well with the GST. Among the latest countries to adopt GST are Seychelles, Congo, Gambia and Malaysia.

Malaysia rolled out GST in 2015 after an intense debate that went on for 26 years. It led to a sharp rise in inflation even though revenue increased considerably. Inflationary trend took one year to subside, reports suggest. A careful analysis of the Malaysian economy proves this tendency of the GST laws.

When it came to Australia and New Zealand where price rise followed GST roll out, protests were the norm. Canada is the other country than India which has a separate state GST. Here too, inflation rose after switching to the new tax regime.

A comparative study of GST implementation in the federal systems around the world, done by the Chief Economic Advisor (CEA), Arvind Subramanian in December 2015, revealed that several countries in the EU, Canada, Brazil, Indonesia, China (a unitary nation) and Australia were facing ‘serious challenges’ in working with the GST.

In this study titled Report on the Revenue Neutral Rate and Structure of Rates for the Goods and Services Tax (GST), Subramanian concluded saying, “They are either overly centralised, depriving the sub-federal levels of fiscal autonomy (Australia, Germany, and Austria); or where there is a dual structure, they are either administered independently creating too many differences in tax rates that weaken compliance and make inter-state transactions difficult to tax (Brazil, Russia and Argentina); or administered with a modicum of coordination, which minimises these disadvantages (Canada and India today) but does not do away with them”.

The RBI too took notes from the GST experiences of Argentina, Australia, Brazil, Canada, Malaysia, New Zealand and Russia. It found flaws in all the GST models.

That being the reality, to expect a perfect roll out of the GST would be a mirage in any country. If the TDP today is expressing apprehensions like the Congress, TMC, SP and Shiv Sena and others, it should be more out of political compulsions rather than any new knowledge. GST, after all, is a continuous exercise!