The new tax is also giving rise to new kinds of
regulation. An "anti-profiteering" clause threatens
companies with fines or closure if they don't pass GST-related
savings on to consumers.
All this undermines the whole purpose of GST -- to
simplify a complex and fractured system. The design of
the tax itself makes things worse. Long negotiations
have produced a convoluted structure. Goods are divided
into four or five different tax brackets (some are
subject to additional "sin" charges as well), in ways
that don't always make sense. Hotel rooms are charged at
different rates depending on how expensive they are;
food at restaurants with air-conditioning is taxed at a
higher rate than at those without. This will encourage
companies to game the system and agitate for shifting
their goods into lower brackets.
To head this off, the government should keep working on
simplifying the system -- narrowing exemptions as far as
possible and reducing the number of tax brackets to one
or two. Officials say that this is their eventual goal,
but too much delay could be fatal. The longer tax
preferences are in place, the harder they'll be to
dislodge. Companies will fight to keep their products in
lower brackets, and tax officials will resist efforts to
curtail their powers.
The roll-out went well. But if the government wants this
reform to be a lasting success, it can't afford to
relax.
Source:::
The Economic Times
,
dated 20/07/2017