WITH the ‘honeymoon period’ over and sharp questions being raised from several quarters on Modi Government’s handling of the Indian economy, the Central Government is keen to push through the much-touted indirect tax reforms Goods and Services Tax (GST) in Parliament this time. The Government thinks that with GST to showcase in its kitty it will be able to send the right signals to the market. It may also be thinking that politically it will be difficult for the Opposition to stall this key piece of economic and tax legislation for long as a larger ‘consensus’ in the ruling establishment is widely believed to have been achieved, in the name of a much-needed push to the economy.
It will be one-sided to analyze GST reforms as a separate isolated singular reform unrelated to the overall neo-liberal policy approach that the governments in the country have been adopting for the last two and half decades. To do so is to miss the wood for the trees. GST reform cannot be seen in isolation from the renewed emphasis on indirect taxes as a source of revenue for the governments worldwide in the period following the neo-liberal push of 1970s and 1980s. This explains why the majority of the countries the world over switched to a unified indirect tax regime of GST in one form or another. The structural adjustments of neo-liberalism and pressure from global financial capital have made it near impossible for governments to raise corporate taxes. In fact most governments have to drastically bring down corporate taxes. With inequalities rising worldwide, it is also not possible for governments to raise revenue from individual income tax beyond a limit. The global trade liberalization under the aegis of WTO has resulted in a situation where tax collection from levy of import duties on goods and services has also come down drastically. Left with not much choice to maintain tax revenues to balance budgets and keep fiscal deficits in check, which is another requirement of neo-liberalism, the governments worldwide have refocused on boosting indirect tax revenues from goods and services domestically by pushing reforms like GST, arguing that it increases indirect tax revenues by expanding the tax ambit and ensuring tax compliance. Governments do this knowing full well that indirect taxes, unlike direct corporate and individual income taxes, are regressive in nature and hence anti-people as both rich and poor end up paying the same amount as taxes on goods and services consumed.
It is also not difficult to see that a unified taxation regime created by reforms like GST would bring structural changes to the economy that would further push small, medium and unorganized sector manufacturers away in the long run by operation of ‘market’ forces and create space for big capital. The marginalization of small producers will created more unemployed people, further pushing down the already stagnant wage market. The pressure from MNCs and corporates for GST can well be understood: they know that for other reforms like FDI in Retail and ‘Make in India’ to work in their favour they would need a structural adjustment in the indirect tax regime that GST can create with unified tax rates for various goods and services and by doing away of various exemptions and taxes that can currently be extended and levied by State governments in India.
Proponents of GST argue that by creating an integrated common market through uniform rates the GST will give a much-needed boost to the economy. Corporate and big capital seeks an integrated common market through GST for free movement of goods and services produced by it. But meanwhile the local production of various essential goods of mass consumption will be under threat as the unorganized sector will find it difficult to computerize its operations for issuing bills, receipts etc for compliance with GST and to take tax credit on inputs while having to face increased competition from corporate and MNCs products.
Proponents also argue that by removing the cascading effect (tax on tax) of the present indirect tax regime it will also reduce prices of goods and services and help curb inflation. This argument is problematic from the macro-economic perspective. To argue on the one side that the tax ambit and tax compliance will improve under the GST regime which will increase indirect tax collection and then to say that it will reduce prices is contradictory in itself. How can prices come down when the overall indirect tax collection is supposed to increase at the macro level? Moreover the Revenue Neutral Rate (the uniform rate at which tax collection will remain same after GST) is likely to be much higher than present indirect tax rates for most goods and services which will further push inflation upwards. This is likely to have a deflating effect on the economy as aggregate demand will shrink with increased prices resulting in downward pressure on overall output.
The constitutional aspect of federalism takes a hit with GST. The general direction of market reforms with development of capitalism and concentration of capital is towards pushing for increased centralism at the federal government level and closing of policy spaces (in this case related to indirect taxation guaranteed under Constitution of India) for elected State governments depending on their socio-political priorities and specific requirements of various states. The GST, to begin with, has taken the form of 122nd Constitutional Amendment Act to alter the existing constitutional arrangement which give States exclusive power to levy taxes on sales of goods. It is structured to subsume all the existing taxes. It will replace all central and state indirect taxes and levies, including excise duty, service tax, additional customs duty, surcharges and cesses, value added tax, sales tax, entertainment tax, central sales tax (levied by the centre and collected by states), octroi, entry tax, purchase tax, luxury tax etc. Currently, tax rates differ from state to state and the states in India, for their regional specificities and political orientations of state governments, have been levying different taxes at different rates depending on the nature of goods. This gives relative autonomy and leeway to run state level welfare mechanisms for people to some extent. There is no doubt that this arrangement is one of the essences of the federal structure of our country. GST, with one sharp blow, strikes away all such possibilities. As its replacement, the GST will impose the “one size fits for all” device leading to an undesired centralization of the entire taxation policy. Moreover the GST council that is mooted to decide uniform tax rates and other aspects is constituted in such a way that the Central Government is likely to have upper hand.
The direction and nature of reforms can also be gauged from the ownership pattern of the agency that has been constituted to carry out various administrative aspects of levying of GST. Contrary to the understanding that levying of taxes is a sovereign State function, GSTN (Goods and Services Tax Network), a private entity, will henceforth control the details of the entire data concerning taxpayers without any security and privacy safeguards. It is even more alarming that even before the GST is rolled out, the Finance Ministry has ordered the handing over of the processing of data for tax surveillance to the GSTN. Non-governmental shareholding of GSTN is dominated by private banks like ICICI Bank and HDFC Bank, and is being created with the outright neo-liberal agenda of the financial sector surveillance program of the IMF and the World Bank. The result stares us in the face; it is starkly evident that the GTSN will only help neo-liberal capital to erode the financial sovereignty of the country.
The genesis of GST lies in the overall neo-liberal policy agenda which promotes and creates market space for big capital. It is anti-people as it puts additional burden on working people and toiling masses in form of higher regressive indirect taxation without giving them anything in return. The push for overall economic expansion also rests on flimsy grounds as seen earlier. The impact on employment generation is likely to be negative with displacement of small producers while democratic aspect of federalism in constitution is pushed aside to make way for pressure for policy centralization in indirect tax regime to favour big capital against people’s interests.