If you follow the news articles in India, you are bound to have come across points about the Winter Session of the Parliament being underway and that the opposition parties are blocking proceedings. One of the big points of contention between the ruling BJP and Opposition (Esp. Congress) has been over the proposed or should I say Much Awaited GST (Goods and Services Tax) Bill.
This article is not a political wrap up of the situation, rather it is about what would be the impact of this GST on the Indian Economy and the common man - You and Me...
So, What is this Goods and Services Tax?
GST is an indirect tax that will be levied on manufacture, sale and consumption of goods and services across the country. The existing indirect tax system is highly complicated and inefficient. There are overlapping taxes levied by the Centre and the states. So, GST is expected to create a single umbrella uniform indirect tax code on goods and services across India.
In simpler words - this new GST is bound to make the lives of majority of Indian citizens a lot simpler from an indirect taxation stand point.
As you probably know, I am an NRI working in Singapore. Singapore has a fantastic GST System and does not have the multiple overlapping/complex indirect taxes like India. There is just one GST that I pay for all goods and services and have nothing else to worry about. This proposed GST from the Indian government is along the same lines.
Some History - Shall We?
Before we dive into the details of the GST Bill, it would be a good idea to review some history isnt it?
You may have read in the news that the Monsoon Session of the Parliament was a complete washout and the passage of the bill was Stalled. Ironically, the GST Bill was first introduced by the Congress led UPA in 2009 but they couldnt get it passed. After the BJP Led government came to power last year, they modified the bill slightly and passed it in the Lower House (Lok Sabha) in May 2015.
As this is a major tax reform which requires a constitutional amendment, this bill has to be passed in both houses of the parliament and with a 2/3rd Majority. Since the BJP doesnt enjoy the majority in the Rajya Sabha - we are basically stuck because the Opposition is stalling the bill passage.
What is the Current Situation?
Before the start of the Winter Session, the political deadlock surrounding this GST bill seems to have been broken after our Prime Minister called on the opposition President and former Prime Minister from Congress to resolve the points of contention. The Bill is expected to be implemented from 1st April 2016 if it is successfully passed in this current ongoing session.
Enough History and Politics. Lets get down to facts about what would be the impact of this GST Bill on the Indian Economy and more so the common citizen of India...
Will the GST Bill Boost Economic Growth?
First things first - a Tax Reform CANNOT boost Economic Growth directly. However, as you may recall from a few lines above, this single indirect tax policy will make life easier for business to establish and run in India. This will impact the countrys Economic Output in a positive manner and of course help push our Gross Domestic Product or GDP further higher.
One of the reasons for the Indian Stock Markets below-expectation performance over the past 6-9 months has been owing to the fact that our political situation is more or less a deadlock between BJP and Congress. With both parties having a majority in either house of the parliament, major reforms like the GST are being stalled just to push a political agenda rather than for the good of the nation.
Investors expect a clear economic agenda from a country that supersedes political differences between the ruling and opposition parties. This GST Deadlock has been a really bad showcase example about India and our Economic Policy to the world. Thankfully things seem to be moving ahead and if the bill gets passed, the global investor confidence is bound to return and help boost our Indian Economy further.
So, indirectly, the passage of the GST Bill will definitely "Help" the Indian Economy.
Will the GST Bill be a Game Changer?
One of the things we Indians expect is an overnight miracle. We are so accustomed to folklores and magical stories from our history that we expect things to change overnight. When the Modi Government took charge last year, there was a buzz around what they could do to revive the Sagging Indian Economy. The Stock Markets reacted positively, investors from across the world reacted positively and to be fair the Indian Economy is in a much better state than it was a couple of years ago. But, at the same time things are cooling down now and the reality of the situation is setting in. The stock market isnt growing as explosively as it did last year but as I said, things arent as bad as they were 2 years ago. So, there is still hope.
Something like this GST Bill can be a Game Changer in the long run - for sure but, if you are expecting an overnight miracle, then you are bound to get disappointed. Not to mention the teething problems and actually implementing this GST concept across a country as big and populous as India.
I Personally have high hopes for the GST but I dont have high expectations for the next 2 - 3 years. This is to avoid disappointment during the initial stages.
I am confident this GST will be a Game Change in the Long Run...
How Does this Impact the Common Man?
When you visit an establishment and buy something, some charge sales tax, some charge state specific tax, some charge you VAT and I am barely beginning to scratch the surface. There are so many indirect taxes in our country that its quite hard to explain all of them.
Thankfully this GST Bill aims at scrapping all those taxes and replace them with a single tax to make things simple. You buy something for X rupees, you add a small % GST and thats it. No need to worry about what state you are in or where you are buying it from.
This does look simple and much better - doesnt it?
Some Last Words
GST will be a powerful symbol of change and may help the government gain the confidence of not just the foreign investors but also its citizens who are hassled by the complex Indirect Tax structure.
But, if history is a good teacher, nothing is for granted and only time will tell what happens If and When the GST Bill is passed.
So, lets wait and watch...