Lok Raj Sangathan was invited recently to conduct a workshop on GST by the Economics Department of SPPU (Savitribai Phule Pune University) for its students. Many points vital to the interests of the students, who are citizens of India first and foremost, were brought out in a very interesting way. Let us look at some of them.
1. As against what is claimed by ministers, everyone who buys a commodity in the market or avails of a service like education, travel, entertainment, etc. is a tax payer. Indirect taxes are levied on all goods and services, by and large. So even those who do not earn have to pay taxes. Most people are unaware of how much they pay.
2. Indirect taxes are regressive: the poor end up paying a much larger fraction of their earnings as compared to the rich. Let us assume an average tax rate of 12%. So a family of 4 staying in a city like Pune and earning a monthly income of Rs. 50000 may end up spending everything. The poorer the family, the more likely it is to end up with no savings. So the tax rate for such families would be 12%. However if a family earns Rs. 50 lakhs a month (and some families do earn not only this much, but even much more!), it would not spend all of it, because there is a limit on how much one can eat, drink, etc. So even if it spends Rs. 5 lakhs a months and pays Rs. 60,000 as tax, as a fraction of its earnings it works our to be just 1.2%.
3. Some of the richest people in the world have admitted that direct taxes are rigged in favour of the rich. Warren Buffet says he pays at a rate lower than his secretary! And even Bill gates has admitted that “People who are wealthier tended to get dramatically more benefits than the middle class or those who are poor”. In India too, it is no different. As an example, let us look at Mukesh Ambani, whose wealth amounts to $ 40 billion, or about Rs. 3 lakh crore. (3 followed by only 12 zeroes. What are zeroes after all?). His yearly salary is, say, Rs. 15 crore. Since it falls in the highest tax bracket, he has to pay a tax at the rate of 30%, which amounts to Rs. 4.5 crore. Fair and square? But wait. What most people don’t know is that he and his family earns about Rs. 1500 crore annually as the dividend income, and that is entirely tax free! So at what rate does he actually pay taxes? For an annual income of Rs. 1515 crore, a tax of Rs. 4.5 crores amounts to 0.3%!
4. GST is to the benefit of the biggest industrialists. Due to GST, big industrialists who do business in a number of states or all over the country will become more competitive. Smaller producers and retailers are going to be ruined in due course because they cannot stand up to the competition from the giants. This is going to lead to huge job losses.
5. For excise threshold limit for registration was Rs. 1.5 crore. With GST, the limit is Rs. 20 lakhs so even the smallest of producers will have to register. The GST system is cumbersome in the extreme. The official schedule of GST rates runs to 213 pages and has undergone repeated last-minute changes. GST is an entirely computer and internet driven system. Small producers and retailers do not have access to this and also by and large do not have the necessary technical knowhow. This means that they have to incur more expenses in order to get their returns filed. The big players already have computer and internet systems in place and a large number of financial experts in place. How will small producers and retailers cope?
The Secretary General of the Bharatiya Udyog Vyapar Mandal, a national traders association, said: “The rules and regulations are complicated and hard-hitting and we, especially small businesses, can never comply. Earlier we filed returns once a quarter but now we have to file three returns a month and that’s 37 in a year. Plus the government wants everything done online. Less than 2% of the country’s 60 million traders may have computers. Where is a small trader going to get a computer from?”
Further, the President of Confederation of All India Traders said: “There are about 10 crore small traders and shopkeepers and nearly 60% are computer illiterate. So at least 60 million traders are not computer enabled. But the GST can be complied with only via a computer system which connects with the GSTN network on which all businesses, traders, shopkeepers will be registered”.
The informal or unorganized sector accounts for nearly 50% of India’s GDP. It is responsible for more than 80% of total jobs in the country. In the GST-era, unorganized sector will struggle for survival due to higher taxes, lower margins and a sharp spike in the cost of compliance. Many businesses in the unorganized sector may close down, while others could find their profits reduced. Unemployment is bound to rise further.
At the end of the discussion it was clear that we need to look at economic problems from the perspective of the people. What is good for the big industrialists is bad for the people at large!