Letter to Arun Jaitley on GST
July 4, 2017
The Hon. Finance Minister,
Government of India,
North Block,
New Delhi.
Respected Sir,
At the outset, heartiest congratulations for the successful launch of the Goods and services Tax in the country.
It has been possible due to your relentless efforts and diplomacy in stitching a consensus on the issue.
I am detailing my first experience with GST. Please treat it as a feedback:
My first experience with GST:
Yesterday evening, I left the office for my usual evening tea.
As I handed the receipt to the cashier, he stopped me.
'Sir, you would have to pay a few bucks more from today,' he whispered apologetically.
It didn't take long to figure out what was going on. 'GST?' I asked. He nodded.
Woah...
In one fell swoop, my monthly tea budget shot up 18%.
'But no, something is amiss,' I said to myself. GST can't be this inflationary.
This restaurant has an air-conditioned section, which I have frequented before, and I do remember paying a 6% service-tax in there.
But yesterday I had my tea outside, in the standing section, and I don't remember paying service tax there before.
At least, it is not mentioned in the bill separately.
Part of the mystery was resolved when I read that all restaurants classified as air-conditioned will have to pay 18% GST, irrespective of whether you eat in the comfort of an AC or not.
However, I still wondered why I wasn't charged service tax before...and now, suddenly, this 18% charge.
Hmm... could it be that the owners didn't report revenues from patrons who consume outside and don't sit in AC?
Could indeed be the case.
This experience, coupled with stories I have been hearing and reading, is making it abundantly clear that underreporting and cheating won't be easy in the GST era.
And if the unorganized sector will be forced to report and pay taxes on everything they sell, the price differential with the organized sector is really going to narrow, giving a big boost to the latter.
This is perhaps why - when most of us are nervous about the roll out of this big-bang reform - stock markets are surging. They were up yesterday and they are up today as I write.
Are they ignoring the near-term uncertainty and focusing on the long-term benefits for a change?
And make no mistake, the long-term benefits could be huge. The more organised or formal an economy gets, the more its productive capacity goes up. Its workforce gets more skilled and the total intellectual and physical capital goes up.
After all, it doesn't take a genius to figure out that when you need to paint your house, you are more likely to use paints from Asian Paints or Berger Paints instead of a small paint factory in your town.
Your neighbourhood grocery store or the local baniya will never be able to offer the variety and convenience of Amazon or a Flipkart.
All of this is formalisation in action. Formalisation is good for the economy, good for consumers, and good for the government too. In fact, it is a long-term positive for all stakeholders. And if everyone benefits, stock markets can't be far behind.
The process, however, certainly won't be glitch-free. There will be pain in the short term as the informal economy could see job losses and decreased demand.
Besides, underestimate Indian jugaad at your own peril. People could use all sorts of tricks to game the system and resist change.
However, the optimist in me strongly believes the positives will far outweigh the negatives in the long term...even if I have to pay more for my evening tea.
As I handed the receipt to the cashier, he stopped me.
'Sir, you would have to pay a few bucks more from today,' he whispered apologetically.
It didn't take long to figure out what was going on. 'GST?' I asked. He nodded.
Woah...
In one fell swoop, my monthly tea budget shot up 18%.
'But no, something is amiss,' I said to myself. GST can't be this inflationary.
This restaurant has an air-conditioned section, which I have frequented before, and I do remember paying a 6% service-tax in there.
But yesterday I had my tea outside, in the standing section, and I don't remember paying service tax there before.
At least, it is not mentioned in the bill separately.
Part of the mystery was resolved when I read that all restaurants classified as air-conditioned will have to pay 18% GST, irrespective of whether you eat in the comfort of an AC or not.
However, I still wondered why I wasn't charged service tax before...and now, suddenly, this 18% charge.
Hmm... could it be that the owners didn't report revenues from patrons who consume outside and don't sit in AC?
Could indeed be the case.
This experience, coupled with stories I have been hearing and reading, is making it abundantly clear that underreporting and cheating won't be easy in the GST era.
And if the unorganized sector will be forced to report and pay taxes on everything they sell, the price differential with the organized sector is really going to narrow, giving a big boost to the latter.
This is perhaps why - when most of us are nervous about the roll out of this big-bang reform - stock markets are surging. They were up yesterday and they are up today as I write.
Are they ignoring the near-term uncertainty and focusing on the long-term benefits for a change?
And make no mistake, the long-term benefits could be huge. The more organised or formal an economy gets, the more its productive capacity goes up. Its workforce gets more skilled and the total intellectual and physical capital goes up.
After all, it doesn't take a genius to figure out that when you need to paint your house, you are more likely to use paints from Asian Paints or Berger Paints instead of a small paint factory in your town.
Your neighbourhood grocery store or the local baniya will never be able to offer the variety and convenience of Amazon or a Flipkart.
All of this is formalisation in action. Formalisation is good for the economy, good for consumers, and good for the government too. In fact, it is a long-term positive for all stakeholders. And if everyone benefits, stock markets can't be far behind.
The process, however, certainly won't be glitch-free. There will be pain in the short term as the informal economy could see job losses and decreased demand.
Besides, underestimate Indian jugaad at your own peril. People could use all sorts of tricks to game the system and resist change.
However, the optimist in me strongly believes the positives will far outweigh the negatives in the long term...even if I have to pay more for my evening tea.
Regards,
Dayanand Nene
Dayanand J. Nene
Socio-political Activist : Bharatiya Janata Party
- Mumbai.
President: Righteous Foundation / Alert Citizens Forum of India / Sahakarsutra
National Secretary: Consumer Protection Service Council
88795 28575 / 90040 28575
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