THE Goods and Services Tax (GST) regime began on July 1, 2017. Thousands of columns in newspapers were filled with news on the “great virtues” of the GST and advertisements by governments and corporates. And, to take credit for it, there is a public debate between former union finance minister P Chidambaram and the incumbent Arun Jaitley as to who fathered the GST; was it UPA or NDA?
Jaitley claimed total unanimity of central and state governments, MPs and MLAs and political parties on the GST. Criticism of the GST, if at all, was on being “hasty” or on some technical ground in its implementation. The BJP opposed the UPA government’s attempt in 2010 for approval by Parliament on GST rate structures. The BJP’s opposition at that time was mainly on the state’s shares and on the GSTN structure. The so-called unanimity on the GST emboldened the BJP government to call for a special midnight meeting at the Parliament Central Hall for its roll-out. The opposition parties which boycotted the event gave non-GST reasons for their absence. But, this was a moment for the foreign and domestic corporates to herald a new beginning with the speech of Prime Minister Narendra Modi, “stepping out from the old to new”, imitating the ‘Tryst with Destiny’ midnight speech of the first prime minister, Jawaharlal Nehru, on the eve of India’s Independence. So, it was stepping out from the old indirect tax to the new GST regime; it is “liberation” for the corporates breaking all “barriers” in one-India market on the stroke of June 30-July 1 midnight. It is time to celebrate. It symbolised the GST as the biggest neo-liberal push of Indian economy.
Big Neoliberal Drive
The GST will result in a rapid movement of informal to formal economy. Crores of mostly self-employed small traders, goods producers and service providers will have to enter the unequal one-India market competition with their counterparts in big organised sectors -- domestic and foreign. Already, lakhs of traders have been agitating at national, state, district and local levels across the country. It is the question of their very survival.
About 7.5 lakh self-employed medicine retailers, with their two-three employees each, resorted to a countrywide strike on May 30, to protest the government granting permission for online sale to big e-marketers. It is not without reason that Prime Minister Narendra Modi selectively met the top executives of consumer, IT and banking industries such as Amazon, Walmart, Apple, Google, Adobe, MasterCard, JPMorgan Chase and Carlyle Group ahead of his meeting with US President Donald Trump last month. Earlier, US MNC and the world’s biggest e-retailer Amazon’s chief Jeffrey Bezos called on Prime Minister Modi and committed $2 billion investment in India and publicly stated, “The pace at which Internet penetration was increasing in India was stunning and that was one of the tailwinds for the growth of e-commerce.” Recently, the government has permitted Amazon to enter in food retailing sector with $5 billion investment.
Several labour-intensive industries such as textiles are on the verge of closure. Many workers, mostly in unorganised sectors, have been laid off. As the GST is totally consumption-based and has no relation with production, it will affect production particularly in MSMEs and will affect employment, mostly in unorganised sector, in a big way.
As the GST is consumption-based, in one-India market under the GST structure only consumption states get the SGST and manufacturing states suffer losses. Though, compensation package has been designed for a limited period, it is a discouragement to manufacturing and, thereby, employment. It is free one-India market for goods and services irrespective of manufacturing/origin, including imports.
Role of Finance Commission
The 13TH Finance Commission totally approved the proposed GST plan and structure at that time and the 14TH Finance Commission mainly dealt with compensation package in the GST plan. But, the Finance Commission remains as the anchor in devolution of non-plan finances. In post-GST situation, big question remains about the future role of the Finance Commission in the distribution and allocation of IGST and CGST to states and about how to adjust GST in the 42% distribution of revenue to states as per recommendation of the 14TH Finance Commission.
Against Development of NE and Hill States
“Area-based excise exemptions given to the industry in the North-Eastern and hill states, including Uttarakhand, Himachal Pradesh and Jammu and Kashmir, will shrink considerably under the GST regime,” reported the Businessline neswpaper. Period of excise duty exemption has been extended one time, only for existing industrial units under certain conditions, not for new industries. Further, ‘exemption’ has become a misnomer for there will not be any exemption. Units will have to pay the excise duty first and will be reimbursed later. Again, it will not be full reimbursement. Such IGST will be divided in 58:42 ratio to the Centre and the state concerned, and refund will be only on the Centre’s share of 58%. Such GST regime will certainly be a discouragement to industrialisation and development in North-Eastern and hill states.
Huge Burden of Indirect Tax on Common People
The GST mainly consists of Central Excise Duty (CED) and Service Tax, and state’s Sales Tax. In one stroke, the central government has increased its indirect taxes manifold. CED is origin-based taxation while GST is the destination-based taxation. There is a huge difference on cost/price at origin and consumer’s price in destination; and, therefore, huge difference in taxation between CED to central government at origin and CGST at destination. Further, CED generally is fixed with some variations in inputs; while there is spiraling increase of GST with every increase of retail prices. The central and state governments are happy in sharing the windfall gain. The GST has been imposed on public services such as rail, road, water transport, postal communication and on other essential services.
Structure and Role of GSTN
Collection, compilation and conclusion of all GST-related data have been bestowed by the government to a private entity, the GST Network (GSTN), created in 2013, with shares of 24.5% to central government; 24.5% to state governments together and 51% to five private firms. Some of these private firms are controlled to the extent of 75 per cent by FIIs. Questions were raised inside and outside Parliament about the confidentiality and security of the data collected by the GSTN on trade and business, including of public sector enterprises and services, which may be easily available to others including foreign firms.
Yet, as reported by the news agency PTI on 25 November 2016, the government admitted that no security clearance was obtained for the private institutions that hold stake in the GST Network. Being a private enterprise, the GSTN remains outside the ambit of audit by the CAG. Recently, the GSTN refused to give CAG access to its network. How then CAG auditors will have access to GST data?
Attack on Social Security of Workers
The Finance Act of 2016 repealed several social welfare legislations for the workers and abolished cess and, therefore, from GST. Based on that, the Union Ministry of Finance, through its notification on July 27, 2016, directed that “none of these cesses is collected w.e.f. April 1, 2016” from industries of Mica Mines, Salt, Merchant Shipping, Textiles, Limestone and Dolomite Mines, Tobacco, Iron Ore Mines, Manganese Ore Mines and Chrome Ore Mines; and cine-workers depriving more than 1.5 crore of workers from existing social welfare benefits. The Modi government has already combined all social security Acts into a single social security code, against which the trade unions have been agitating.
Increase in Drug Prices
Through a notification on July 29, 2013, the then UPA government (i) exempted Central Excise Duty (CED) on all formulations based on 348 drugs/combinations of drugs in the National List of Essential Medicines (NLEM) under Drugs Price Control Order (DPCO), 2013; (ii) imposed zero CED on several other drugs, and (iii) put 6% CED on the rest of the drugs at cost/kg.
Yet, the GST Rate Schedule on pharmaceutical products, notified after the GST Council meeting held on May 18, 2017, relied on the Central Excise notification of an earlier date of 17 March, 2012 ignoring the subsequent 29 July, 2013 notification. The GST Rate Schedule (i) exempted only human blood and contraceptives from GST; (ii) fixed 5% GST on all formulation as per List I of DPCO, 1995; and (iii) 12% GST on rest of the medicines. As a result, the prices of essential medicines increased by about 2.5% and there is a trend of spiraling prices of other medicines.
Further, GST Rate Schedule in 2017 considered List I (based on 74 essential bulk drugs) of DPCO, 1995 when DPCO, 2013 has a different essential drug list as NLEM. As a result, several drugs/combination of drugs in NLEM has 12% GST. This has forced the National Pharmaceutical Pricing Authority to revise upward the ceiling price of NLEM drug formulations. Now the central government will earn 6% CGST on ultimate retail price on almost all medicines with exception of human blood and contraceptives; and 2.5% on retail price of all earlier exempted list of essential drugs.