The Goods & Service Tax (GST), implemented in July 2017, is a single all-India tax which replaces a number of different indirect taxes that were levied so far on the sale of goods and services. It replaces the excise duty, special excise duty, special customs duty, central sales tax (CST), service tax, various surcharges and cesses levied by the central government. It also replaces most of the indirect taxes levied by state governments including the value added tax (VAT), luxury tax, entertainment tax, entry tax and purchase tax.
“One nation, one tax, one market” has been the demand of the big monopoly capitalists of the country for many years now. It is therefore not surprising that all the associations of big capitalists, including the CII, FICCI and ASSOCHAM, have welcomed the GST. They have hailed it as the biggest economic policy reform implemented in recent decades. Prices in the share market have scaled new heights.
Lakhs of small and medium-scale producers and traders have come out on the streets in protest against the GST. Mass protests have been reported especially in the most industrialised regions such as Gujarat and Tamilnadu.
Further concentration of capital
Business analysts have prepared lists of the big capitalist companies that will gain increased market share as a result of the GST in numerous sectors including textiles and readymade garments, footwear, tiles and sanitary ware, plywood, electrical equipment and appliances, plastics and packaging. It is being predicted that the share of small-scale producers in the tiles industry will decline from 40% to 20%.
Big companies that produce and sell on an all-India scale stand to gain in many ways from the introduction of GST.
Firstly, they no longer need to maintain warehouses and stock their commodities in every state where they sell in order to save on central sales tax, entry tax, purchase tax, etc. The effective removal of state barriers means huge savings in the cost of storage and transportation for the big companies operating at an all-India scale.
Secondly, GST has eliminated the phenomenon of one tax being levied on another tax. For instance, in the tax system prevailing so far, central excise duty was levied at the point of production, while state VAT was levied at the point of sale. This led to VAT being levied on the excise duty as well.
Reduction in the cost of logistics, storage and transportation, along with the elimination of taxes on taxes will enhance the profitability of large-scale manufacturing and trading companies. It will enable them to increase their market share at the expense of small and medium scale local producers and traders.
All enterprises that sell any good or service are required to obtain GST registration, with the exception of those whose turnover is less than Rs. 20,00,000 per year (or less than Rs. 10,00,000 for enterprises in the North Eastern states and Jammu & Kashmir). While this appears to be a concession to the smaller local units, it is not really so. Those without GST registration will be hard pressed to find buyers of their goods and services because those who purchase from them will not be able to claim input tax credit (see Box).
Input Tax Credit
The Goods and Services Tax (GST) is similar to the Value Added Tax (VAT) in so far as it allows companies to claim back the tax they have paid while purchasing their inputs.
Let us suppose that Company A produces and sells readymade garments, and purchases all the cloth it uses from Company B. Then Company A will collect GST on the garments it sells, from its buyers, and pass it on to the government. At the same time, it can claim and get back from the government the GST it has paid to Company B on the cloth it has bought. This is called “input tax credit”.
The laws governing GST provide for small-scale enterprises to either opt for exemption from GST registration or for a composition scheme which allows them to pay tax at a flat rate, based on the value of their turnover. However, such enterprises can neither take credit for GST paid by them on their inputs, nor can they issue GST incorporated bills. Those who purchase from such enterprises cannot claim input tax credit on such purchases. Therefore, large-scale producers and traders of goods and services are not going to buy anything from such enterprises which are not registered or have opted for the composition scheme.
Even the smallest scale operators are effectively being compelled to obtain GST registration. Moreover, the GST requires every registered producer and trader to have access to computers and the internet. Large number of small units who do not use computer or internet today will have to invest in them. They have to learn or hire people to work with the GST system. In large parts of the country, away from big cities, where there is no electricity for several hours at a stretch, they will have to also invest in power generating sets. In places country where internet connectivity is poor, small and medium-scale units are bound to run out of business.
Highlighting the adverse effects of the GST on the majority of traders in the country, the Secretary General of the Bhartiya Udyog Vyapar Mandal said,
“The rules and regulations are complicated and hard-hitting and we, especially small businesses, can never comply. Plus the government wants everything done online. Less than 2% of the country’s 60 million traders have computers. Where is a small trader going to get a computer from?”
Thus, large-scale operators headed by the capitalist monopolies will be the biggest gainers. The degree of concentration and monopoly is bound to grow. The impact of GST on small and medium-scale producers and traders will be similar to that of the Note Ban; in fact, it will be even more severe and long-lasting.
Centralisation of taxing power
With the introduction of the GST, the taxing powers of state governments have been reduced significantly. Individual state governments no longer have the power to decide the rates of indirect taxes on goods sold in their territory, with the exception of the liquor excise duty. The GST rates on different categories of goods and services will be decided by a council headed by the central Finance Minister.
State governments are now more heavily dependent on the central government for their revenues. The revenue from the central sales tax, levied on inter-state sales, used to accrue to the state from which goods were being sold. Its abolition implies a fall in revenue for the relatively more industrialised states, which have to depend on the central government to get compensation for the lost revenue.
Further extortion of the working class
The principle of input tax credit applies to all sellers of commodities, except those who have nothing to sell except their labour power. The working class will pay higher taxes on most things it buys from the market for its survival, without getting any of it back.
GST is expected lead to a significant increase in the market prices of many essential services including mobile phone bills, banking services, house rent, health care and school fees. International experience confirms that for goods and services on which the GST rate is higher than the total tax rate in the past, the burden get passed on to the people who buy them. In the case of those commodities on which the GST rate is lower, the sellers benefit as prices do not get reduced. Consumer price inflation has gone up in all the countries where GST was introduced.
The capitalist class and its spokesmen spread the misleading propaganda that very few people in India pay taxes. While direct tax payers may be few, every person who buys anything from the market pays indirect taxes. The share of indirect tax in the total taxes collected is already very high in our country. With the introduction of GST, the indirect tax share will further increase.
While the rate of direct taxes, such as the personal income tax, is higher for higher income earners, the rate of indirect tax is the same for all buyers of any goods and services. The introduction of the GST is thus a regressive step.
The GST benefits the richest capitalists in the country. It is against the interests of the working class, peasants and other small-scale producers and traders.