Goods and Services Tax"- A reform waiting to happen"

The recently concluded meeting of Empowered Committee of State Finance Ministers on Goods and Services Tax perhaps could only manage to agree to disagree on the major arguments of the State Finance Ministers, derailing yet again any consensus on the Constitution (115th Amendment) Bill 2011, better known as the GST Bill.

 

The major arguments, besides compensation on the loss of revenues of the States, which though have been budgeted under the central pool but ambiguous on the disbursement, were on the inclusion of certain commodities and the impediment formation of a federal outreach of the Bill and its impact on State revenues. The rise of regional affirmation politically also has had its bearing, led more by the trust deficit on Central policies than on the fiscal autonomy which are a must to tide over the much-needed tax harmonisation, adding to the core of desired financial reforms.

 

The ‘tax on tax’ regime which was curtailed by the implementation of simplified Value Added Tax in 2005, and which allowed for a credit for tax paid on inputs, stemmed the impact marginally. However, it continued to be plagued by the existence of multiple rates of taxes and State-led exemptions depending upon whether the State is production-based or consumption- based across the basket of product and service categories.

 

The major taxes, several of which still remain outside the purview of VAT, have a multiplicity of differences between the States, leading to an unbalanced trade gap. Despite the task force on GST of the 13th Finance Commission working out a revenue-neutral rate of 12 per cent (five per cent CGST and seven per cent SGST), assuming there was a single GST rate for tax to be at a uniform percentage for the final product regardless of the supply chain arrangements for both manufacturing and distribution, the intent to implement is a precursor contingent upon the States to continue to be incentivised and reimbursed on their loss in revenues.

 

With no further pensive direction on any option or recourse to be aligned on the borrowing limits as percentage of Gross State Domestic Product of the States, decided by the Union Government, together with tax to be levied, the slugfest continues.

 

This defeats any cogent argument which is essential to address these concerns. It’s no wonder that there has been no alignment contrary to the recommendations by the commission, including suggesting models of European Union, Canada and Australia on the duality of the taxation incidences framework which draws on exhaustive references on the treatment, inclusions, exclusions and for other major source of revenues for the States. Besides other earning categories for States, petroleum products and alcohols, which between them contribute to upwards of Rs 2,00,000 crore of the States’ revenues ,fiscal strengths have been a perpetual bone of contention.

 

The growing fiscal deficit and consumer price inflation, which touched 11.24 per cent recently, have implied that the essential commodities, agri-produce and finished consumer products are continuing to face severe pressures squarely on account of the supply chain costs. Deregulated fuel prices across States, impacting the overall operating margins, have led to a continuous struggle by entities to tweak either end of the spectrum to remain efficient and profitable.

 

These latent incidences together with volatility and unsynchronised taxes, are laid sequestered within the rising supply chain costs and collected at the final point of consumption — with the overall burden being shouldered by the consumer. A recent business survey underlined these factors where, besides policy reforms with increased penetration of capital infusions in form of direct investments (26 per cent), infrastructure support to boost economic growth with a targeted GDP growth of six per cent (19 per cent), supply chain concerns were cited as high as 18 per cent by the respondents in terms of challenges to conduct businesses in India.

 

The resultant impact is a perpetual shift of aligning a network configuration and distribution channels which are continually been in the war rooms of executives grappling with uncertainty, owing not only to the indirect taxes but lacunae in deployed infrastructure and volatility of deregulated fuel prices. These are presently creating a chasm in the rates of taxes and policies, which differ from State to State.

 

This invariability has built up costs into inflation, which is now breaching the turf of credit and economic policies and impacting inter-State trades and the Union’s capital pool deficit. Further focus is needed on a review of the existing constitutional arrangements, which may well require a substantial realignment. The dual GST framework requires affording both the Centre and the States to have concurrent indirect taxation powers, subject to prohibition on extra-territorial taxation, playing fiddle to the alternatives in the form of acceptability and resistant intent by the States.

Fiscal prudence, perhaps, should begin from addressing the basics of controlling the distribution cost as a premise to afford a strong foundation for reforms. Subsuming through the layers, a simple structure will boost investments, eliminate disparity in taxation of goods and services and lead to an efficient tax compliance network. Additionally, it will bring down the resultant impact of logistics cost as a percentage of the GDP, which remains much higher at 12 per cent — both direct and lateral, as hidden expenses, for India in comparison to developing economies.

 

The GST regime is the single most-needed reform which can perhaps achieve the desired results. It can come about with one stroke of policy formulation. Strong political will can put the GST in place and secure a ‘harmonised’ consensus for its implementation. Who takes this up, will be decided after the Lok Sabha election in 2014.

 

 

(Author is New Delhi based Policy Analyst)

Media and its polarization "agenda"

By Abhishek Joshi :

The Gödel’s two theorems in arithmetic logic provides for an interesting insight which relates more to its applicability with the Indian main stream media than the static reasoning of “incompleteness” which was originally put forward by him in 1931. Simply put it states that any effective theory capable of expressing axioms can never be both “consistent” and “complete” and that there are further infinitely many statements in the language of the theory that share the property of being true but non provable in the system.

The media of this country, with minor exceptions has simply chosen to create its own frame work of axioms which they make believe as true continuously brow beating it by virtue of the power of surrogate ethos without any concern for the half lies - half truth factors degrading to the ebb low of the biased media repertoire without knowing that it’s never consistent and shall never be complete.

The case in point is more reflective of the “agenda” which the media, specially the electronic media is setting for the country in run up to the general elections for 2014. The central theme is being rested on its only “natural number” of “polarization” in politics. The media could not have had a more opportune moment then the very recent announcement of the largest opposition party picking up its Prime Ministerial nominee providing more fodder to galvanize efforts for a string of series pushing an alleged populist debate down the throats of this country without any scant regard for the cleavage which was gaping wider and wider to the foundations of the societal fabric and rightful political discourse which perhaps could have been pregnant with a possibility.

The recent Muzaffarpur riots provided another set of diatribes raising the stink evidentially suppressing the news which led to the riots and the under prevailing conditions which were brewing in the back ground. Rather than presenting a view which perhaps should have assuaged the temperaments and the messages with sublimity covering the basics of the reporting, the panels were called in immediately on “Prime Time” with a judicious mix of spokesperson who are known for a set ideological verbatim regardless of whether seen addressing the “chowks” in cities or in impeccable glass face studios to present and pick the sides on the already set “agenda” by these media houses and each side loved to play to get the “face time” playing to the individual constituency.  Prominent speakers who every limitedly are called to participate when rise up to even question the intent of these sought of debates within the arguments, are either cut short or brushed aside or a direct question is being forwarded to another glibber who needs to add on his own dash of the chucking matching the anchors..!

This is a serious issue, since this is shaping up a mind set of set of communities and people, clearly vitiating an able discourse leaving many things unbalanced, never mind even claimed under the subterfuge of democratic principles and constitutional rights of freedom of speech which is becoming shriller day by day and by any virtue of constitutional qualification is clearly “unrestrained”.

Any TRP table for the month across for these channels draws a sinister picture of what adds more to the revenues of the channels and its economic dynamism of profits. A very Senior journalist, much known & respected for his genre of ethics recently reported in some IV part series on how the largest media house in the country has butchered the tradition of media, its reporting, ethos’s and has migrated long ago from the moorings and traditions of which few, including like him of the tribe are left to single handedly defend.  It would not need a sharp analytical mind to discern that “Agenda’s” are being decided in advance, supplemented with features and content around them, brought to debates with identified panellists and regardless of the outcomes of the debates are served with “editorial” takes as consensus of the panellists and ensured that controversial engagements are equally carried on the next.

The agenda’s are picked up from topics which are invariably around and have developed a pattern; Prominent political coverage which are unceasingly now restricted to top 2~3 parties, personalities within them, fissures which are being fought and the upcoming youth leaderships (of parentage), Crime reports – Purely around Sexual assault, clashes between communities, drugs & rave parties and student unrest, Sports – Prominent around only Cricket and IPL’s and its crony establishments and finally Cinema – Again restricted around gossips, fashion and revenue collection and most prominent and hilariously even “news editions “of TV sops are being presented in the entertainment sections.

The developmental reports are merely added as “features” once a week and better yet are “paid features” with corporate MNC giants who have nothing but proven to act with immunity and themselves carry a dubious and at times criminal accord and record of all aspects as fiduciaries, environmental degradation, human rights, governance policies and fundamental rights violations. It’s the commercialization of this media; the entrenchment of the corporate “ownerships” of these establishments and FII’s share holdings which are part of the strategic profiteering, which are the basic guided principle. Balanced opinions, unbiased reporting of facts and ethics are only for award functions, seminars and holier than thouchampagne and cocktail circuits.

It is this reporting, dubbed under “main stream media” patronage which in actuality is only limited to few cities and studio’s and hence mid wife’s options to pick the “big idea” for a “big fight” which must be served “tonight” to the nation syndrome which has sacrificed true stories of courage, innovation, societal positivity’s, achievement of individuals in sports or entrepreneurship, addressal of genuine public grievances & concerns and broader governance and polity issues which perhaps truly and indeed reflect the spirit of vibrant democratic foundation.

This is doubtless creating an alternative with proliferation in social media though now with a disturbing trend of consolidation of popular ideologies on the independent forum as well which perhaps equally shall turn tides in an event of a weak moment. Fortunately, it shall be a while until this happens since the intent and intensity will take a match to this insanity only in future and perhaps covering the wider sets of rules might be checked with equal ferocity and sane voices of arguments.

It’s simply put, a shame, that the” Self styled, Main stream media”, has snatched responsibility which actually lies within the political discourse, however its more than pity that the political parties have themselves seen this is an opportunity to let loose this menace in name of democratic freedom, gaining the “popularity context” for themselves as medium of “mass personality and propaganda” for individualistic and polity gain using it either sides.

The incompleteness is complete, since none is actually concerned with this nexus of political parties and media houses deriving their own “Radia theorems”, yet being debated with hush - ness which even belittles the deafness of silence believing the framework to be true and to be propagated.

It’s but the “original number”, the citizen who knows the logic would not hold for long specially for the run up when he takes the walk to the nearest ballot to exercise his “axiom” to seek, find the truth and to set up an agenda for himself and the nation in turn. Media or no Media.