Jul 4, 2023·edited Jul 4, 2023Liked by Anil Padmanabhan
Another wonderful article Anil.
I would like to slightly differ with regards to reduction of GST tax rates. One can argue that India at this current stage of development needs to increase % Investment share of GDP and subsequently reduce % consumption share.
Unlike Income Tax and Corporate Tax cuts which relatively increase savings & Investments, a cut in GST would entail increased consumption.
Now unlike the East Asian nations (China, Japan, S. Korea and Taiwan), India is a democracy with budgetary spends more tilted towards consumptions (Freebies, subsidies) and it is only in the last 3-4 years (with PLI, increased Capex on Infra) that the spend is getting little more balanced.
Therefore, there is economic merit in continuing with the present rates. Fiscally speaking it balances the budget but in larger context incentives investment over consumption.
Now politically it might not be prudent but that is different aspect al together.
Thank you so much for your kind words and thoughts.
Just to take our conversation further, my point is that India's pie is growing--unlike in the past. Its GDP has gone from $1 trillion a decade ago to $3.5 trillion.
Secondly, indirect taxes impacts everyone and hurt the poorest the most.
Thirdly, we tend to see greater compliance at lower rates. At present, they have detected some Rs63,000 crore of fake invoices--incentives to duck the system, like it was when India used to impose 90% income tax.
Fourthly, your point about stepping up capital expenditure is spot on. My point is that greater compliance will come with lower rates, without impacting consumption--hence revenues should be secure, if not better.
Do watch this Thursday's (7 pm) interview with Haseeb Drabu on StratNews Global. It will answer this question.
GST is the best financial move made by the Government in the last 75 years. Critics will always be there, what is making a big difference, is the increasing amount of collection, due to more and more businesses deciding to do away with measures of tax evasion. The now assured amount, every month, is enabling the government to take decisions on planning and spending for infrastructure development in states, Defence purchases, relief measures in areas struck by natural disasters or drought, establishment of educational and medical institutions and keeping contingency funds for distribution of free rations and vaccination during the Covid period and continued support after that. Critics have to keep in mind the growing economic status and consequent respect of the country, in an otherwise dull and gloomy economic environment worldwide. The experts have predicted that India will outpace China in growth, during the next decade. GST is the critical change that has contributed to this situation. An important article Anil, with revealing information, as usual 👏
Thank you for your thoughts and kind appreciation. Grateful.
You are so right. Revenues have meant easing of fiscal pressures and enabling investments in desired sectors. India is not a fully market-driven economy--though it has permeated most sectors, especially if you include the footprint of the country's digital economy powered by digital public infrastructure. As a result, government intervention to rebalance and redirect growth is still very critical.
The onset of the covid-19 pandemic and the subsequent Russia-Ukraine conflict together with aggressive monetary tightening by the US Fed has only worsened the situation for most of India. In such times, government intervention--like you pointed out free food grains, vaccine--have mitigated the suffering.
It is a long haul. Key thing is that India's cup is half-full and not half-empty.
Thank you for the laudable writing on the introduction and implementation of major historical indirect tax reform in the form of GST !
I am picking up on your important criticism and implicit suggestion for improvement of reducing the slab rates of GST . First and foremost implementation of GST is still work in progress. At the outset please note that there exists Nil rate as well , besides Exemption ( threshold limit of turnover ) for small players on whom GST is not leviable . Secondly there has been constant movement of large number of goods from higher slabs to lower slabs over last 6 years. Thirdly also note that 18 % slab has Input Tax Credit off setting taxation on tax bringing down the effective rate . Finally keep in mind that with diverse economic interests spread over wide geographical regions, dense demographic concentrations and lopsided developed regions, it goes to the credit of the Government that slabs are presently restricted to 5 .
While GST in India has caused global amazement, the most important achievement of GST Council has been not only that decisions have been taken with consensus (except once ) but with speed without awaiting the annual Budget.
Work of GSTN has been applaudable however introducing AA or for that matter any o
Thank you for your thoughts and kind appreciation.
Was looking forward to your expert intervention. Point taken about the exigent circumstances in which the GST was born and the subsequent pulls and pressures. My point is that the success of GST in the last six years should inspire the much due change. And, in this I believe the GST Council has the right temperament to see it through. Guess, once the hurly, burly of the general election is behind us, the time should be ripe.
Your comment ended abruptly. Look forward to any additional thoughts and please keep participating. Knowledgeable and domain experts like you add heft to a much needed conversation.
Very informative article on the most important tax reform of our country!The GST benefits are near universal and across all stakeholders.As we enter its seventh year of being operational, we must consolidate the gains and focus on building a modern, world class, technology led indirect taxation system based on principles of equity, efficiency, certainty and convience.
Absolutely, this is the time to consolidate and ready for the next phase of GST. It is a critical piece of infrastructure for business--both India and foreign.
Excellent recap of events relating to GST. Next few years, we must ensure that corruption around GST refunds and other processes at state level is reduced to zero. And weight to have everything included u der GST soon. Of course, have just 2 rates ..7 and 15 per cent ..besides a zero rate. More importantly, we need to set up GST Council models for many areas like water management, agriculture, ecology etc. Hopefully, next Modi Cabinet would accomplish all this.
Thanks Anil...Sorry for some typos!! The 2 nd sentence should read..." And we should have everything included under the GST soon". ..I wonder how (and why!!) digital keyboard changes the content on its own!!!
Another wonderful article Anil.
I would like to slightly differ with regards to reduction of GST tax rates. One can argue that India at this current stage of development needs to increase % Investment share of GDP and subsequently reduce % consumption share.
Unlike Income Tax and Corporate Tax cuts which relatively increase savings & Investments, a cut in GST would entail increased consumption.
Now unlike the East Asian nations (China, Japan, S. Korea and Taiwan), India is a democracy with budgetary spends more tilted towards consumptions (Freebies, subsidies) and it is only in the last 3-4 years (with PLI, increased Capex on Infra) that the spend is getting little more balanced.
Therefore, there is economic merit in continuing with the present rates. Fiscally speaking it balances the budget but in larger context incentives investment over consumption.
Now politically it might not be prudent but that is different aspect al together.
Dear Lakshmisha,
Thank you so much for your kind words and thoughts.
Just to take our conversation further, my point is that India's pie is growing--unlike in the past. Its GDP has gone from $1 trillion a decade ago to $3.5 trillion.
Secondly, indirect taxes impacts everyone and hurt the poorest the most.
Thirdly, we tend to see greater compliance at lower rates. At present, they have detected some Rs63,000 crore of fake invoices--incentives to duck the system, like it was when India used to impose 90% income tax.
Fourthly, your point about stepping up capital expenditure is spot on. My point is that greater compliance will come with lower rates, without impacting consumption--hence revenues should be secure, if not better.
Do watch this Thursday's (7 pm) interview with Haseeb Drabu on StratNews Global. It will answer this question.
Look forward to your continued participation.
Best
Anil
GST is the best financial move made by the Government in the last 75 years. Critics will always be there, what is making a big difference, is the increasing amount of collection, due to more and more businesses deciding to do away with measures of tax evasion. The now assured amount, every month, is enabling the government to take decisions on planning and spending for infrastructure development in states, Defence purchases, relief measures in areas struck by natural disasters or drought, establishment of educational and medical institutions and keeping contingency funds for distribution of free rations and vaccination during the Covid period and continued support after that. Critics have to keep in mind the growing economic status and consequent respect of the country, in an otherwise dull and gloomy economic environment worldwide. The experts have predicted that India will outpace China in growth, during the next decade. GST is the critical change that has contributed to this situation. An important article Anil, with revealing information, as usual 👏
Dear Gautam,
Thank you for your thoughts and kind appreciation. Grateful.
You are so right. Revenues have meant easing of fiscal pressures and enabling investments in desired sectors. India is not a fully market-driven economy--though it has permeated most sectors, especially if you include the footprint of the country's digital economy powered by digital public infrastructure. As a result, government intervention to rebalance and redirect growth is still very critical.
The onset of the covid-19 pandemic and the subsequent Russia-Ukraine conflict together with aggressive monetary tightening by the US Fed has only worsened the situation for most of India. In such times, government intervention--like you pointed out free food grains, vaccine--have mitigated the suffering.
It is a long haul. Key thing is that India's cup is half-full and not half-empty.
Best
Anil
Hi Anil
Thank you for the laudable writing on the introduction and implementation of major historical indirect tax reform in the form of GST !
I am picking up on your important criticism and implicit suggestion for improvement of reducing the slab rates of GST . First and foremost implementation of GST is still work in progress. At the outset please note that there exists Nil rate as well , besides Exemption ( threshold limit of turnover ) for small players on whom GST is not leviable . Secondly there has been constant movement of large number of goods from higher slabs to lower slabs over last 6 years. Thirdly also note that 18 % slab has Input Tax Credit off setting taxation on tax bringing down the effective rate . Finally keep in mind that with diverse economic interests spread over wide geographical regions, dense demographic concentrations and lopsided developed regions, it goes to the credit of the Government that slabs are presently restricted to 5 .
While GST in India has caused global amazement, the most important achievement of GST Council has been not only that decisions have been taken with consensus (except once ) but with speed without awaiting the annual Budget.
Work of GSTN has been applaudable however introducing AA or for that matter any o
Dear Balesh,
Thank you for your thoughts and kind appreciation.
Was looking forward to your expert intervention. Point taken about the exigent circumstances in which the GST was born and the subsequent pulls and pressures. My point is that the success of GST in the last six years should inspire the much due change. And, in this I believe the GST Council has the right temperament to see it through. Guess, once the hurly, burly of the general election is behind us, the time should be ripe.
Your comment ended abruptly. Look forward to any additional thoughts and please keep participating. Knowledgeable and domain experts like you add heft to a much needed conversation.
Best
Anil
Dear Anil,
Very informative article on the most important tax reform of our country!The GST benefits are near universal and across all stakeholders.As we enter its seventh year of being operational, we must consolidate the gains and focus on building a modern, world class, technology led indirect taxation system based on principles of equity, efficiency, certainty and convience.
Dear Vandana,
Glad the latest episode resonated with you.
Absolutely, this is the time to consolidate and ready for the next phase of GST. It is a critical piece of infrastructure for business--both India and foreign.
Look forward to your continued participation.
Best
Anil
Excellent recap of events relating to GST. Next few years, we must ensure that corruption around GST refunds and other processes at state level is reduced to zero. And weight to have everything included u der GST soon. Of course, have just 2 rates ..7 and 15 per cent ..besides a zero rate. More importantly, we need to set up GST Council models for many areas like water management, agriculture, ecology etc. Hopefully, next Modi Cabinet would accomplish all this.
Dear Surendra,
Thank you for your kind words and thoughts. Much appreciated.
Totally endorse your thought that the GST Council template should be extended to other pressing challenges that require cooperative federalism.
Look forward to your continued participation.
Best
Anil
Thanks Anil...Sorry for some typos!! The 2 nd sentence should read..." And we should have everything included under the GST soon". ..I wonder how (and why!!) digital keyboard changes the content on its own!!!
No issues Surendra.
Autocorrect is a curse at times. I have had some embarrassing moments too. :)
Best
Anil