History is not just about the facts but how you choose to write it. History is about how you choose sides and defend sides. And history will remember that the Indian Tax System was a beautiful web of Byzantine, which makes it interestingly complicated
Indian policies weren’t always democratic. Democracy isn’t completely about the freedom of choice, speech and movement. Sure, it is one of the many pillars on which the ideology is built upon but it has different faces as well. And one such important part is the economic policies. However, post Independence, India was all about protectionism. You can’t blame a country like India, which had been robbed of its enormous wealth and resources for over 200 years, to be protective about its own resources. This pseudo-post-traumatic behaviour came with its own predicaments. Our early policymakers worshipped Fabianism, and their economic policies were heavily influenced by the British. India was essentially a socialist state, with the Government’s intervention in every sector- mining, steel or automobiles. The economic plannings of India (Five Year Plans, broken down in numerical phases) were framed by the Planning Commision Of India. It not only dictated how different industries should function but it was also accompanied by red tape.
In 1991, the then Prime Minister of India, P.V Narasimha Rao and his finance minister (and a future Prime Minister) Manmohan Singh decided to reform the entire tax structure and economic policies of India. One of the first steps that they took was abolishing theLicense Raj and welcomed foreign direct investments in the country. This ended the monopolies of many public sectors and ensured that India was now an open market. Since then, India has seen many reforms in its economic policies. And it saw the biggest reform last year, in the form of GST. Although India is trying to move forward with a one-tax policy withGST (Goods and Service Tax), it is still a very complicated domain.
Even though the policies are much better as compared to the 1970s or 1980s, India is still considered to have one of the most complicated tax structure in the world. In May 2017, Deloitte reported thatIndia has the second most complex tax jurisdiction. In recent years, the changes have been frequent, making it even more complicated to understand. Before the country can understand and adapt, the tax structure changes, including or excluding different sectors in the process. The GST, in itself, has seen multiple changes in its own structure. With its introduction in July 2017, the GST replaced 17 different indirect taxes in one go, including Sales Tax and Value Added Tax. It also brought a flurry of problems. The GST hype scared traders and tax-payers. In a country of nearly 2 billion, rumours travel faster than the speed of light. While some feared that they would be charged extra along with their Income Tax, some feared that it will lead to lower dividends. And it just didn’t end there. Questions were asked about the BJP-led Government’s efficiency and their myopic vision while framing such a massive tax structure.
Well, if so many countries use different variations of GST, why does only India get the brunt of it? It is because, in other countries, the tax slabs are uniform. The Indian GST system has six different rates. Add to this, both the State and Centre collects the tax (SGST AND CGST) can collect these taxes instead of a single authority. Another reason that adds to the criticism is that there are some industries like petroleum and electricity that are exempt from paying their taxes. That means that companies who use these products as their raw materials cannot avail input tax credit.
The worst part about this was that this came at a time when there was a global trade boom. The World Trade Organisation (WTO) predicted that global trade was likely to grow by 3.6% in 2017, up from the lacklustre 1.3% growth in 2016. India’s export did have a significant increase in November 2017, it is still not as significant a change, keeping the magnitude of the reform in mind. It makes it worse after thedemonetisation effect India was still recovering from. Few from the corporate sectors criticised this reform heavily as well. DK Srivastava, The Chief Policy Advisor of EY said, "The GDP will be negatively impacted for at least two quarters by the GST as there will be transitional problems and people will be adjusting to the new tax regime."
However, there are some strong arguments for GST as well. India still reels from the effects of its regressive socialist policies of the past. A one tax policy can not only avoid complications of multiple indirect taxes but also help file the total taxes earnt. It also has other advantages like a defined treatment for e-commerce websites, regularization of the unorganised sector etc. Thus, GST might ensure stability in the long run and help improve direct taxes. Arun Jaitley, the Finance Minister of India, who implemented GST, recently defended why GST is not a failed initiative and how it indeed help the country. In his defence, he is absolutely right. It isn’t easy drafting a law which will be equal for all strata of the society. India is just not diverse with its culture but also its economic lines.
Only time will be a testament if India’s (and some might argue, the world’s) biggest tax reform will benefit the world’s largest democracy or not. The Indian Tax System is a wonderful conundrum and a really interesting case study. How the world’s second largest nation, in terms of population, with the highest youth population, functions with such a complicated tax system is something that one can only wonder.