Aao Shikhaye Tumhe Tax Ka Funda – II

Ravi: As we have already talked about, the Goods & Service Tax (GST) is also an indirect tax. It is a single all-India tax which replaces a number of different indirect taxes that were levied so far on the sale of goods and services.

Ajay: Ravi, can you tell some of the indirect taxes that are replaced by GST?

Ravi: Yes, it replaces the excise duty, special excise duty, special customs duty, central sales tax (CST), service tax, various surcharges and cess levied by the central government. It also replaces most of the indirect taxes levied by state governments including the value added tax (VAT), luxury tax, entertainment tax, entry tax and purchase tax. And as per my analysis, GST is not in the interest of people of this country. It will lead to lot of people losing their jobs in small and medium scale industries and businesses and rise of prices of many goods and services.

Sanjana: How can you say this when all the newspapers are saying it is good for economy?

Ravi: You see, GST’s main claim is “One Nation, One Tax, One Market”. In the old system taxes varied from state to state.

Sanjana: Why?

Ravi: Because state governments could levy whatever tax they wanted though the taxes levied by the central government were the same all over the country. That is why you must have noticed that on many packet two MRPs used to be printed, one for Maharashtra and another for other states before 1^st of July. Now the tax rate is the same everywhere in the country. That is why they are saying ‘One Tax’.

Ajay:  Why are they saying “One Nation?”

Ravi: Now, they no longer need to warehouses and stock their goods in every state where they sell in order to save on central sales tax (CST), entry tax, etc. Let us take an example to understand this. Godrej produces refrigerators in Maharashtra but sells them all over the country through its dealers. Before GST, if it wanted to sell to a dealer in Gujarat, it would have had to pay CST as it was a sale from one state to another. When the dealer in Gujarat sold to a consumer, the Gujarat state VAT would be paid. So, two taxes would have had to be paid in the case of Godrej selling directly to a dealer, whereas for a refrigerator producer selling within Gujarat only VAT would have had to be paid. Thus Godrej used to be at a disadvantage compared to a local Gujarat producer. To overcome this disadvantage, Godrej opened a warehouse in Gujarat and transferred refrigerators from its factory in Maharashtra to its warehouse in Gujarat and sold to the dealer from the warehouse. Then only Gujarat VAT was paid and the CST was avoided. However, this forced Godrej to have a warehouse in every state it wanted to sell in  and stock its refrigerators there before they could be sold.  All this meant lot of cost. After GST, all that is not required. So for the purpose of selling, the whole country is one national market now which was divided into various state markets before GST. Hence, the slogan “One Nation’ after GST.

Sanjana: What about ‘One market’?

Ravi: What I understood is that after GST all state barriers have been removed. No octroi, no more checking at state borders. The whole country is ‘One market’. You can produce wherever it is the cheapest to produce and sell wherever there is demand for your good.

Ajay: Is all this not good for us?

Ravi: To understand this, we must try to find out who will gain maximum and who is going to lose out. Again let us try to find the answer with an example. Soaps are produced by big international producer like Unilever and Indian producers like Godrej in huge factories. They are also produced in small factories in taluka places by local businessmen. All of their production can be sold in the towns and nearby villages, whereas Unilever and Godrej need the whole country to sell their soaps. For them, even the country is not large enough so they export to other countries. Don’t you remember the reason why the British colonized India? They needed the big market of India to sell their textiles and machineries.

Ajay: That is correct. Does this mean big producers of our country will now be able to easily sell everywhere in the country and destroy small and medium producers the way the British destroyed our world-famous textile producers?  

Ravi: Yes, you are absolutely right. For a small producer, a city or district or at the most a state is large enough to sell whatever is produced. With the removal of state barriers and CST, no requirement of keeping warehouses, and faster movement of goods, big producers will become much more competitive. Small producers get none of these benefits.

Sanjana: Is this the reason why so many small producers and traders are complaining about GST?

Ravi: I talked to my kirana shop owner. He was telling me that everything to do with GST has to be done through the computer and internet, from filing of GST returns to payment of GST. He has never used a computer or internet. He only uses WhatsApp on his mobile phone. He was complaining that he has to now buy a computer and internet connection and hire a person to operate them. He further told me that as such his business is down after demonetisation and now GST will further bring down whatever little money he was making.

Sanjana: Won’t this difficulty be faced by every small producer and trader in the country?

Ravi: Yes. They all are worried. The net result of all this is that GST will increase the profit of large-scale manufacturing and trading companies. GST will lead to big producers and traders increasing their market share by taking away the business of small and medium scale local producers and traders.

Ajay: Ravi, I now understand that big producers and traders will gain and small ones will lose but how does it hurt all of us?

Ravi: I asked the same question to some experts. They told me that small and medium enterprises, producers, service providers and traders provide 90 percent of the jobs in the country. If small enterprises will be driven out of business, lakhs of workers will lose their jobs. The job situation which is already very bad will become worse. What will happen to us when we pass out?

Sanjana: Yes Ajay, we did not realise that GST will hurt us students also in due course. Thanks Ravi for telling all this which is being hidden away from all of us.

Ravi: You do not have to thank me. Even our parents who are working in office need to worry.

Ajay: Why?

Ravi: See Ajay, has GST not led to increase in prices of many services we all use including mobile phone, and electricity? This is the same case with other services like health care, banking, house rent, and school fees.

Sanjana: Yes, I can now see how the government fools us through misleading propaganda. Indirect taxes or GST are never going to do good for people but will always increase the tax burden on people. And the media also works for the agenda of these rich people. So we can’t trust the media and neither can we trust the government. All their steps seem to be for the benefit of the richest of the country.

Ajay: Thanks Ravi, this discussion made me clear about GST.

Ravi: Thanks guys, but we should also spread this knowledge among our friends and others.

Sanjana: Very well said Ravi. We all will have discussion with our friends and wherever possible make them conscious about the true purpose of GST. I am now convinced that GST will only help the very rich to become richer and hurt all of us.

Ajay: Yes Sanjana, I will also organize discussions with my friends on this.

Ravi: Yes Ajay, let us all help each other to spread it and organize more of such discussions. So we will meet again. See you guys.

Ajay: Yes will meet again… bye friends…

Sanjana: See you all…