Towards a single low tax regime 

(Mains GS 3 : Indian Economy and issues relating to Planning, Mobilization of Resources, Growth, Development and Employment.)

Context:

• The introduction of a uniform GST was a watershed moment in India since the country’s earlier regime of taxes and cesses, both at the Centre and the States, was a big barrier to free trade and economic growth and was a cesspool of corruption.

Unified single tax:

• In December 2018, the late Finance Minister, Arun Jaitley, announced that the 28% GST slab, which he called the “dying slab”, would be phased out, except for luxury items. 
• However, GST is still a complicated tax regime with different slabs and it is not easy to comprehend or comply with, and is open to interpretation, harassment and avoidable litigation. 
• Empirical data from across the world on the benefits of a unified single tax is incontrovertible, so; an unambiguous directive to the bureaucracy is necessary from the ruling dispensation to come up with just two categories: goods eligible for zero tax and goods that will fall under a single rate, say 10% or 12%.

Unwise to tax more:

•  A unified single tax regime needs bold and clear reformist thinking at the political level but for good purpose as imposing a high GST in some areas does not make sense.
• ‘Sin’ taxes, for instance, are at cross purposes with the government’s policy of generating growth and creating jobs under ‘Make in India’. 
• For example, a typical 300-room five-star hotel generates direct employment for around 500 people of whom 90% are waiters, housekeeping staff, front desk staff, security and concierge staff, besides cooks, financial and clerical staff. 
• There are a host of others employed in associated services such as the spa, gift shops and swimming pool.
•  The hotel also generates indirect employment in ancillary areas: it buys bed linen, furnishings, rugs and carpets, air conditioners, cutlery, electrical fittings and furniture, and consumes enormous quantities of food produce. 
• All these generate jobs and income for farmers, construction contractors, artisans and other manufacturers. 
• Five-star hotels also generate foreign exchange by attracting rich tourists and visitors. So, it’s unwise to tax these hotels to death.

Affecting employment: 

• High taxes on air-conditioners, air conditioned restaurants, chocolates and luxury cars create an economic ripple effect downstream, in a complex web of businesses that have symbiotic relationships. 
• In the automobile sector, the GST on electric cars, tractors, cycles, bikes, low-end and luxury cars ranges anywhere from 5% to 50% despite the fact that the sale of automobiles is the barometer of an economy.
• The effect finally reaches down to the bottom of the employment pyramid.
• However, the plan must be to figure out how to rev up the economy by making the rich and upper middle class spend and move more people up the value chain in order that more chocolates and ACs and automobiles are bought by them, instead of designing a tax system that keeps these products out of the new consumer class’s reach.

Creates several disputes:

• The confusion has given rise to several disputes, for instance; ID Fresh Food which makes ready-to-eat foods like chapatis, rotis, parotas and sells various types of idli and dosa batter, appealed against a GST ruling of the Authority for Advance Rulings (Karnataka bench). 
• The ruling had called for a distinction between rotis and parotas and had subjected parotas to a higher GST rate of 18% since the food item did not fall under the category of “khakhra, plain chapati, or roti” (which fall under the 5% slab) and needed to be processed or heated for further consumption. 
• For a country aspiring to be a $5 trillion economy it is quite unnecessary that its taxmen turn gourmet chefs and get bogged down by researching the differences between various kinds of food items prepared with dough.

Distrust on revenue sharing:

• There are items that are exempt from GST likepPetrol, diesel, aviation turbine fuel which are not under the purview of GST, but come under Central excise and State taxes.  
• Central excise duties and varying State taxes contribute over 50% of the retail price of petrol and diesel, probably the highest in the world barring banana republics. 
• There is distrust between the States and the Centre on revenue sharing and anger at the Centre for riding roughshod over the States’ autonomy and disregarding the federal structure of the Constitution.

Conclusion:

• The Finance Minister should do away with all the confusing tax slabs so that a single tax slab will ensure compliance, widen the tax net, improve ease of doing business, boost the economy, create jobs, increase tax collections and reduce corruption as witnessed in many countries.