GST: Mere Big Talk or A Real Game Changer?

Fri, 29 Jul Pre-Open

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The news of strong possibility of passage of Goods and Services Tax (GST) Bill is doing the rounds. There are many states in favour of GST. But the implementation has not happened as the Congress party has placed its own contentions. The importance of GST can be explained by the reactions of financial markets to every development in this space. As soon as it gets some whiff from this corner, there's a beyond normal movement in the stock markets. This explains that the GST is looked upon with much optimism and importance.

But is the excitement around GST really justified? Or is it simply over-hyped? Several experts and economists are of the view that the proposed tax is low on substance and massive on hype.

An article in the Economic Times offers some arguments made against the GST by economists. Let us note some of them...

To start with, we have the question against the basic idea of GST. The reputation with which GST came was that it will lead to simplification in the tax regime. There would be simplification, but not as much as expected. As the article states, there will be three taxes to be dealt with. These are - the CGST collected by the Center, SGST collected by the states and an IGST on inter-state movements collected by the Centre. Also, services which were not required to pay tax earlier will now have to pay the SGST. This will have to be paid to the states and will mean a rise in the cost of services. To take an example, services such as telephone calls, insurance, etc. will become dearer due to the implication of a common tax rate.

Next to this is the debate over the scope of GST. It is noted that many goods are kept out of the purview of the GST. Constant pressure from the states have meant that goods such as alcohol, tobacco, and petro products would not qualify for GST. Also, electricity and real estate are kept out of the GST net. They are said to have separate taxes which is said to have a cascading effect for these sectors.

Also, GST promotes the idea of one-size-fits-all. The economists are of the view that a common rate for all states undermines fiscal federalism. This is because different states have different requirements and a standard rate won't suit all the states.

Further, there's a lack of clarity on many aspects in the GST. Will new taxes be added in the future? What will happen to other taxes and duties like Octroi, Excise and Customs duty, etc.? These questions are still left unanswered.

Last on the list are the issues regarding the uniformity on differential taxation and getting the GST rate capped in the Bill. If these are not finalised, the apprehension of the consumer will go for a toss. This is because the decision on the rate of tax will be decided as per the whims and fancies of the tax administrators and the government.

So, these were the arguments against the GST Bill. However, the bill didn't get all the praise for nothing. The benefits of the GST stand equal as well.

In principle, the GST does appear to be a move in the right direction. By simplifying the indirect tax code, GST is likely to ease the business environment and also create a level-playing field for businesses. Also, it is going to bring about a structural change in the economy. The exclusion of cascading effects till the level of final consumer will significantly improve the competitiveness of the original goods and services in the market. This will have a beneficial impact on the GDP growth of the country.

So going by the above discussion, GST has its pros and cons. It has advantages to cheer for as well as some drawbacks that need a fix before it becomes a reality.

In all, the implementation of GST must be a high priority for the government in order for it to be effective. The government will have to address above mentioned issues and ensure that the GST proves to be a boon and not bane for the country.

As far as financial markets are concerned, GST should not change one's perception about businesses and the way they value them. In other words, following a bottom-up approach and picking undervalued stocks during such times could continue to prove to be the best play.

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