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Corporate income tax done, next should be GST
21-Sep-2019
Economictimes
Gst,
343 Views
While Nirmala Sitharaman’s bigbang announcement on corporate-tax reduction on Friday has had a huge positive impact on industry sentiments, the day ended with a whimper with her announcements of ‘tinkerings’ with the goods and service tax (GST). The FM should be reminded of the ‘KISS’ principle: Keep It Simple, Stupid. Attributed to Lockheed aircraft engineer Kelly Johnson, ‘KISS’ was to urge his engineers to keep aircraft design so simple that even a stupid person should be able to repair the aircraft with ordinary tools on the combat field.
Bureaucracy, the world over, is usually oblivious to ‘KISS’. An Amazon ad boasts that it sells more than a crore of different products, apart from myriad services, with more categories added every day. Asking bureaucrats to identify and categorise all products and services for differential tax slabs in the GST regime is the surest way to get into a muddle. Empirical data from across the world on the benefits of a unified single tax is incontrovertible. So, an unambiguous directive to the bureaucracy is necessary to come up with just two categories: goods eligible for zero tax, and the rest to come under a single rate, say, between 10% and 15%, or even lower. That means everything, except those specifically exempt, is taxed. This will not only be easy to comply with but will result in compliance and higher collections, while minimising corruption.
Take the ‘sin taxes’. They make no sense and are at cross purposes with GoI’s overarching policies of generating growth and creating jobs. In this, the GST Council’s tax rate cut in hotel tariffs is welcome. A typical 300-room five-star hotel generates direct employment for around 500 people, 90% of whom include waiters, housekeeping, cooks and concierge staff. A host of others are employed in associated services such as the spa, gift shops and the swimming pool.
The hotel also generates indirect employment in ancillary areas. It buys bed linen, furnishings, rugs and carpets (that are periodically replaced), ACs, cutlery, etc, not to mention food produce. All these generate jobs and income for farmers, contractors, artisans and other manufacturers. Five-stars also generate forex by attracting rich tourists and visitors, and has a direct bearing on foreign direct investment. The same logic should apply to bringing down high taxes on ACs, cakes and luxury cars.
The low-cost airline model is successful because of ‘KISS’ — the elimination of all frills like food and assigned seats. It has single-class seating, point-to-point travel with no codesharing, direct internet booking, and no middlemen. Sitharaman should take a cue from Prime Minister Narendra Modi who hinted at major GST reforms, and the doing away with all the confusing tax slabs in one fell swoop — a move that will be both populist and well-regarded by economists. Even as Sitharaman has done the right thing and brought cheer to many by reducing corporate income tax, higher taxes, GST included, have never solved a country’s economic woes. For that, one needs deep and far-reaching reforms. She will do well to remember what Winston Churchill once said, ‘For a nation to tax itself into prosperity is like a man standing in a bucket and trying to lift himself by the handle.’
Source:economictimes
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