The good tax

The deadline for implementation of the goods and services tax is being pushed even further. The GST has been delayed because of slow progress in arriving at a consensus. But the fact that India has a federal structure should be its strength and not its weakness. Discussions in the empowered committee have continued for many years without yielding a consensus. Today there are few champions of the tax reform. The Central government must fill this gap by taking leadership. At the same time,it is important for the opposition to play a constructive role. The idea of the GST was mooted during the NDA government. The BJP should show some seriousness,especially since it has cited no principled opposition to it. In the current environment,when reforms have come to almost a halt,the GST would be a big step forward.

Once the GST is implemented,record-keeping,filing of tax forms and the corruption associated with the multiplicity of levies will be eliminated. The biggest benefit will be that of building India as a common market,where goods and services move freely across state boundaries. Finally,the GST will make possible the full elimination of customs duties. These features will raise productivity,reduce distortions and increase the rate of GDP growth. Most OECD countries have done away with the large number of small and distortionary taxes that we still continue to impose.

The first milestone that the finance ministry needs to target is a well-functioning Central GST,which combines the CENVAT and the Central Service Tax into a single IT system on the lines of the Tax Information Network (TIN) which has worked so well for income tax. While it is foreseen that difficulties may arise with many state administrations trying to fight for turf in GST collection,the Central government must take the lead and push for an efficient administration. Each business should have to deal with a single administration and a single IT front end for the GST,rather than many tax administrations and many forms. The Centre must draw a roadmap for this. Further,the UPA must push states ruled by the Congress and its allies to back the GST. This will take the sting out of the oppositions resistance and avert the danger of having the GST delayed by years. Finally,with the current focus on black money,it would help to publicise the fact that the GST is an important element in the fight against tax evasion. It creates incentives to be part of the tax chain and get refunds.