“YOU EITHER TAKE THE PLUNGE, OR DO NOTHING AT ALL”

UNION MINISTER FOR FINANCE, DEFENCE AND CORPORATE AFFAIRS ARUN JAITLEY, who is at the centre of all the GST action, talks about the challenges of executing the biggest tax reform since Independence and takes on naysayers of the new tax regime. Excerpts from an exclusive interview with Senior Editor SHWETA PUNJ

Q. Where would you place GST among the economic reforms India has undertaken? A. This would certainly be one of the big ones. If you look at the others, delicensing would be one, bringing down the rates on direct taxes would be another, creating world-class infrastructure in highways, telecom, medical care, aviation— we have started moving in that direction. You add a few more sectors, that would be one big reform; then global integration has given a new confidence to the economy. GST would be as big. In terms of taxation, it is certainly the biggest post-Independence. The great takeaway is that the GST Council has become India’s first federal institution. And the fact that every decision was taken by consensus—that is a good precedent. Q. What will the overall impact of GST be? A. The GST is the economic integration of India. It lays down a new normal. [Until now], we’ve had a taxation system of multiple taxes, with different rates in different states, not to mention the cascading effect of taxes, arbitrary decisions, corruption in assessments and evasion by assessees. We are transiting to a system where the country will have only one tax. Q. How might the consumer benefit?

A. In the long run, there will be two impacts. If everybody pays their taxes and collections increase, then there is a capacity for the economy to make indirect taxation rates more reasonable, in the medium and the long run. Second, the cascading effect goes. There will be an immediate dip in taxation. The rates will be lower, the weighted average will be lower, but the collections will be higher, so the outgo will be more in the initial stages. In the long run, the rates come down. If your basket of taxes is bigger, then you have to lower taxes.

Q. What might be the impact of GST on GDP growth?

A. The higher revenues and spending should lead to higher growth, but we are not making any predictions as to how much. The GST is being implemented for the first time in India, and there are no settled models to predict this. Q. What are the challenges of implementing such a complex tax reform?

A. GST is a transformational change. If you look at the present system, we have separate sets of taxes at the Centre—excise, service tax. We have separate taxes in every state, such as the Value Added Tax (VAT), and then we have a lot of smaller taxes like

purchase tax, entry tax, octroi and luxury tax. Under GST, multiple taxes are converging into one. That’s a first. Under the old taxation system, one had to have multiple interfaces with different tax authorities. Large-scale evasion took place because of an inefficient tax system; movement of goods and services was extremely difficult as there were blockages because of different rates of taxes. There were no input credits—so we paid tax on tax. The GST is a mammoth exercise in which we will, in the first instance, converge multiple taxes into one. Second, we will have a free flow of goods and services across the country. We have a new system for filing returns. Now, nobody will have to pay tax on tax, so the cascading impact of taxation is gone. The weighted average of the entire basket of taxes post-GST is lesser than the existing weighted average, and I am sure that over the next few years, this direction can be maintained. The governments will still have a higher collection because of [the GST being] a more efficient system. Q. Why does India have multiple slabs and not a single one as experts had proposed? wouldA. and Not discriminatory.havingbe highly multiple inflationaryWould slabs chappalyou charge and taxesa BMW on cara hawaiat the same rate? It would be inequitable. So those who talk of a single slab are completely off the mark. To avoid inflation, you have to stick to an equivalence figure. [Taxes on] food items have to be kept nil or negligible or very low. Then, the definition of ‘luxury items’ will also keep changing. A lot of the ‘31 per broughtcent items’, down insteadto 28 perof being cent, have been brought down to 18 per cent. Soap and toothpaste are not luxuries. [In the future], we will have to include furniture as well. Just so that it is not inflationary—we have kept our standard rates as 12 per cent and 18 per cent. But in an ideal situation, the 12 and 18 per cent have to converge. Q. There is plenty of confusion about the GST process among taxpayers...

A. There are plenty of misconceptions. For instance, about businessmen having to fill 37 forms in a year. You have to register only once, and then, before the 10th of every month, you have to file your tax return for the previous month. The other two returns are self-generated by the computer. There will be minimal interface with the assessing officer—classification disputes, for example, will be a one-time affair. You won’t know who your assessing officer is, whether Centre or state. And the bulk of assessments will be online. Also, a lot of this confusion has been created by the stakeholders who found that the earlier system was easier to evade.

Q. It is the small traders and shopkeepers who are the most concerned...

A. Small traders will be [unaffected by the change to GST]. [For sales of] up to Rs 20 lakh, there is no tax, and up to Rs 75 lakh, you have the composition scheme. So if you are a trader and have sales of up to Rs 75 lakh a year, you pay 1 per cent—and if you are a manufacturer, 2 per cent, but then you don’t get input credit. And you just have [to file] a quarterly return, so the whole universe of small traders has the simplest way, and there should be no confusion. Earlier, under the service tax system, you had a

Rs 10 lakh limit, and for VAT, different states had a Rs 5 lakh or a Rs 10 lakh limit. And [for] central excise, [the limit] was Rs 1.5 crore. That’s why we arrived at the figures of Rs 20 lakh and 75 lakh. So, in this way, the bulk of your small guys get covered.

Q. There are also worries that the GST network system is not ready, and that could lead to chaos... A. For the first two months, we have given a relaxation of time, for two reasons. The first is that it will give time to traders and manufacturers to get acquainted with the new system. Those who have not registered, will register. The July return, which [would have had] to be filed in August, will [now] have to be filed in September. Secondly, when you change from a manual system to an entirely technological system, however competent the technology is, there are bound to be some glitches in the initial stages. This would happen anywhere in the world. This two-month relaxation will help us overcome [the initial] glitches, and allow the system to smoothly set in. Q. What about the free movement of goods between states? Is the e-way system ready? Have the rules for it been framed? A. The rules for the e-way system will be framed—there hasn’t been enough time [to do so]. So, in the meanwhile, the existing system will apply. Some states already have a robust e-way system, some don’t. There were also two views whether to have an all India e-way rule or not—we will need a little more time to bring together a consensus [on the matter]. Till then, the movement of goods will be free, and whatever is the existing rule in the states will remain applicable. In some cases, if there is a spot check—just share your GSTN number and whether you have paid tax or not will be checked. There will be no traffic jams on highways.

Q. What about the preparedness of the GSTN—the network that will be used to transact the tax? Is it up and running?

A. The GSTN has done some trial runs. There were some initial glitches, which have been fixed. Also, we have been framing rules right up to the 18th of June—now they have incorporated those changes as well. They require some time to do the tests, which Infosys is doing. And that is why you require only the registration for now. For filing returns, you need to get ready between now and September.

Q. If all this was not ready, why didn’t you postpone implementation for a couple of months?

A. We had to begin by either July 1 or September 1—the law doesn’t give you an option. Initial confusion or transformational problems will be there [in the beginning] even if you do it on the 1st of September. In any technology, there will be some initial glitches. So if it is done earlier, we’ll be able to settle the problems—that’s the philosophy. In my experience, once you postpone and blink, you can never push through reform. There are two options: either you take the plunge, [face the problems that come up] and finally it will smoothen out, or you follow the UPA and do not do anything at all. Also, for the first time in history, it is the private sector and not the government that is not ready.

Q. Couldn’t the timing of the GST rollout have been better, considering that small traders are still reeling from the aftermath of demonetisation? A. The kind of exaggerated analysis that was being made (during demonetisation)—the western media and Indian media that were influenced by these analyses were all proven wrong. Not one man in the world of economics predicted that India, despite demonetisation, would have a 7.1 per cent growth. That India would cross 7 per cent in the year of demonetisation—not one economist said this. Not even Arvind Subramanian. n