Whenever we talk about a new tax reform GST, we need to know how
prepared we all are to receive it and adopt the same. When we speak about
preparedness, we mean preparedness at various levels. At the level of a
Manufacturer, Trader, Service Provider, Departmental Officers, Consultants,
Banks, Judiciary, Industrial Associations, Tax Professionals and Public at
large – the common man. Let us see the other side of the Coin-The True picture.
The Common man, who does not have any say whatsoever in this whole
process. The Common man who is expecting the world to change once GST comes.
The common man who has been promised so much that even if he believes half of
them to be true, still he feels alienated and sees him in seventh heaven. There
has been a buzz that the prices will come down once the GST is introduced.
However things may not be as rosy as expected. The reality may be different
than what we all perceived initially. The moot cause for the same is 18 to 20%
GST rate of Tax. We all know that the service sector contributes to more than
64% to the GDP and more than 90% the new businesses, the so-called startups are
from the service sector. Our manufacturing sector hardly contributes to the
GDP. Even if you expect the GST rates to be a modest 18% it translates into a
rise of 4% from the existing 14% Service Tax rates and this is effectively 29%
increase in revenues for the governments from the service sector.
Last year the total collection of taxes for Service Tax was
approximately Rupees 2 lakh Crores. In other words, the total tax levied in
this new tax reform – GST will be around 18% instead of 14% and the same will
be concurrently levied by State and Centre both. For example 10 percent CGST
and 8 percent SGST. Thus the total tax collection may increase to 2.5 lakh
crores. The estimated tax collections of the all the states from GST on account
of Service Sector will be whooping one Lakh Crore in excess to what they are
already collecting from VAT and other taxes. The question arises as to who is
going to take the burden of this extra 50 thousand crores. As in every indirect
tax, here too the sufferer is the ultimate consumer and common man who will be
the last in the chain of events and will be bearing all the tax burden. One
fails to understand this mathematics as to how the prices will come down if 64
percent of our GDP is from Service sector, the overall prices may see an upward
trend. Till few months back the Revenue neutral rate RNR was said to be in the
range of 25 -27 percent. However, the recent studies say that the same in less
than 18 percent. One wonders as to whether it’s pure allied mathematics or
“politico-maths” under the influence of a rough weather session what we all saw
in the parliament since few months. The economist need to address this area.
It is also to be seen how prepared the state and Central
government offices are as well as how prepared the professionals and
consultants are to receive this new tax Reform which will be the biggest of the
tax reforms since independence. As for the common man, he never had any say nor
will ever have in all such processes and are unaware about the other side of
the coin.