 Hello and welcome to NewsClick, today we have with us economist and Professor Venkatesh Atreya and hello sir, welcome. And so on 18th of December, Prime Minister Narendra Modi announced that 99% of items will attract GST of at 18% or less and only around 1% of items which belong to the category of luxury items would attract the highest rate of 28%. So what is your reaction to it sir and what does this mean, what are the implications of this? Well you know we partly seem to be in election mode, either following the recent results or even prior to that I would not know because there have been some re-jigging of GST rates over the last several months and this one seems to suggest that manufacturing industry for example would be pleased to have some items moved from the 28% list to the 18% list. But the there are implications if you do this then what happens to revenues to the government from GST they may take a hit, already we are having less than expected GST revenues over this fiscal and this may raise concerns about the overall deficit. So it seems that you can understand this move only as an election eve move while also possibly it is the case that the government has in mind raising resources from other sources to manage the deficit, one of which would be of course you know taking on getting a part of the reserves from the RBI which they have now denied they are going to do. The other could be an increase in this investment, neither of which is a particularly appropriate way of dealing with the issue. So I can only say it is a political announcement and it doesn't really address the heart of the issues in GST that have been proved so difficult for especially the small informal sector. And as we have seen ever since GST has come into place there have been constant consistent protests by traders, small traders, by various segments I mean before the Gujarat elections they made some concessions for that. They made some concessions and so what is the heart of the issue like what is the problem with GST to put it simply? First of all the GST is indirect tax right, everybody knows it, it is indirect tax so the implication of that is that it hurts the poor for more than it hurts the rich because all those who are required to pay taxes on these items pay at the same rate regardless of their levels of income or wealth. So as a share of the poor man's budget this makes a much bigger impact than as a share of the rich man's budget for whom it will be a flea bite. So fundamentally it is a very regressive mode of taxation but one that many countries do adopt. In the run up to the GST it was claimed that we will have you know once the GST comes in we will have one country one tax and it was even you know astoundingly it was even claimed as a second liberation and June 30th of that year was highlighted saying that a new India's bottom and this is absurd that you a new India's born when the tax regime for the indirect taxes changes leaving aside such you know unnecessary hype and unwarranted hype it has turned out that this is not by any means one country one tax regime there is multiple taxation rates and there are also significant exclusions from the GST net all this is familiar but the two main implications of GST are the following one that it is a serious erosion of the taxation powers of the states when they may get a one-time benefit because they do now get to tax services they get a share of the service sector taxation but otherwise states were essentially surrendering their powers of taxation where they could have used differential rates of tax across commodities to serve whatever specific ends they had in mind for the state that is gone even a country like the US does not impose this degree of centralization on the goods and services taxes regimes but we have done that and it's I think in my view this is a serious erosion of the states autonomy and remunerating powers in in attending to their concerns at a state level so no wonder they protested for a long time but ultimately they were forced to kind of fall in line the second and perhaps very important aspect is the fact that being in indirect tax what it has done is to expand the tax net at the lower end earlier excise duty would be imposed only on those enterprises with an annual turnover of 1.5 crores or higher but the GST applies across the board to all units with an excise with an annual turnover exceeding 20 lakh rupees now because they have a composite scheme which is slightly higher and all that but nonetheless this implies that the whole idea of garnering revenue is to garner revenue from the small players the informal sector in the sense GST compounds the anti small sector effects that demonetization is already unleashed so this is a regime over the last five years seems to be repeatedly attacking a small and informal sector despite the perception that earlier this was the regime that would be pro trader but in practice it has turned out to be very very poor for the informal sector and apart from of course the informal sector enterprises the workers in the sector have been badly affected the overall economy has been affected by demonetization all this is well documented the there's no surprise that protests whether across the country because you know in many of these cases where suppose an enterprise takes works job works and the incoming job work will have a certain value they'll add some value and then sell it very often they won't be able to get the appropriate receipts for them to claim tax refunds so it'll be very difficult for them to run these enterprises once they pay these kinds of input taxes and they are not able to claim it from the authorities subsequently and that would be very difficult the procedures are quite complicated for the small small guys and that's how many of them have protested because the government keeps talking about the increase in number of registered taxpayers and so on but you're trying to raise resources from the weakest segments of the population not from the ones we can afford to be while cooperatives are granted massive taxes ideally ideally you should be focusing on raising direct taxes in this country and from the well to do but you have abolished wealth tax a couple of years ago and your last year in the last year's budget the finance minister reduced the tax rate for corporate entities with an annual turnover of less than 250 crores from 30% to 25% so you're being regressive both in your direct taxation measures and your imposition of additional indirect taxation the therefore you know I'm not surprised with the price all over the country and it was done in such haste so that they themselves have subsequently modified the rate several times over indicating the utter like a preparedness in the run up to the GST and this whole hot house way of going about it just get some political brownie points the whole farce of the June 30th midnight celebration of the parliament house and all that I think to me this represents unseemly haste there been much more careful balancing should have gone into the because we hear this now from former advisers who are not so keen to talk when they were in office but there is a general consensus that demonetization of the disaster and GST was very hastily introduced without adequate preparation because so was demonetization with the 2000 rupee note I don't need to remain due to that so essentially what we have is a regime that seems to essentially look at perception rather than the actual effect of what they do and this is again a perception phenomenon except I think that this is going to have serious implications because if they actually do not already they receiving as I said GST revenues well below the expected levels so they might actually end up with a larger deficit and they might then try to counter that to tackle that by more disinvestment which is quite disastrous I mean in fact I remember that the previous year's budget the 75,000 crore target for disinvestment exceeded by 100,000 crore they went to 100,000 crores and so the finance minister claimed that as an achievement now it's not clear to me where disinvestment of public sector enterprises is an achievement essentially your foregoing future revenue for immediate return you're selling off capital yes and there is really no logic to that I mean especially if it is purely as a you know gap filling measure I mean one could you know one would have to argue much more carefully for justifying disinvestment I don't think it can be justified because I mean if a private buyer buys a share obviously he or she expect to make money from it so we wouldn't the government be able to do it unless there are legitimate reasons for the government not to make such profits for social reasons because public sector enterprises obviously are not driven only by profitability considerations they have to look at social objectives also under the mandate that they have so anyway I think this particular announcement by the prime minister it remains an announcement by the way still what he says is his wish to an audience that would like to hear it and whether the GST council is able to do this in the current context whether the states are willing to accept the implied decline in revenues would have to be seen but in principle when you move a number of items in 28% list one way to carefully examine if they are really non-luxury items or is this being a ruse for lowering taxes even a luxury item we had to see only when we look at the actual details we will have some assessment but that's a very narrow question the larger question is why don't we relook at the whole GST regime itself and you know redress the problems that the small players are facing as well as address the question of the states fiscal powers of the states which need to be in some sense rebalanced in a situation where they have really lost a lot of the power to tax and if you already you know shorts being heard that you know we must bring in petrol diesel and all that in the GST regime you know the every time the center makes major concessions incorporate taxation the revenue losses are taken also by the states they did they and this is a distance they don't make made by the center so our tax regime our entire framework of center state financial relations needs to be revisited unfortunately 15 finance commissioners has a set of terms of reference which go in the opposite direction more centralization but that is a separate matter we might just say some other time but I think on the whole I'm not very impressed with this announcement which seems primarily an election even on cement may not have large W implications at one level but certainly or intended to have a sufficient effect that okay we are you know responding to the concerns of the people here of course primarily certain manufacturing cement for example automakers some a digital camera these are all areas where there might be a case for lowering it from 28 to 18 percent and that's probably what the prime minister is trying to reach out to those segments and and you know obviously there are larger implications here of the political economy of elections and how they run in this country how they have funded the whole and I want to get in all that but yes I so on the whole I don't think this is a well thought-out initiative you'll have to see what we'll have to see the details of it when it comes to GST council so I think we should leave it at that G since GST is applied at two categories of goods so 18 percent lowering certain items from 28 percent there are about thousand or classification so there is a zero rate 5 percent 12 percent 18 percent back in July of this year they did a big rejigging and that one of the good things that it was to remove the GST on napkins sanitary napkins in fact we were all shocked when they put it in a higher tax bracket and many people have tested you know you talk about methi butchera and all that and you end up putting sanitary napkins in an 18 percent bracket so it's good that they remove that they did some of those things and some of them they moved to from 28 to 18 as I said these are all rejigging after a very hasty very ill-planned introduction of a tax regime which is certainly not one country one tax but multiple tax rates with no proper rationale for the various tax rates and a constant change rejigging of these rates creates a lot of uncertainty for businesses so on the one hand you talk about a stable tax regime on the other hand you keep making these changes because you've done the whole thing post haste you've not done it with proper planning and thinking so that that you know I think this government has repeatedly done that that's like everything else yeah and demonetization or this or or the abrupt abolition of planning commission by just an office order and replacement by this anithya yoga whatever nithya yoga whatever so you know that's it's all you know it's part of the course I don't know what to say so yeah okay thank you sir and keep watching news click