When I was a young journalist in Bombay (now Mumbai), there was an event that evoked a lot of humour and pained resignation. It was 1986 or perhaps 1987. The Octroi tax staff in the city went on strike over some issues. Since commerce does not, and cannot, stop in Mumbai, military and paramilitary personnel were deployed at the Octroi centres. The daily collections went up by more than 10 times the usual average. The strike was withdrawn.
In case you are unaware, in the pre-Goods and Services Tax (GST) era, Octroi was collected for inter-state transportation of goods, and by large municipal corporations. It was riddled with corruption, as the Mumbai episode proves. To understand the transformation that GST has ushered in, here is another folklore. During the Octroi days, after the dizzying popularity of civil services, the most sought-after Government jobs were as excise inspectors in the States. The latter’s “dowry” value was as enormous as the former. This is no longer true.
The leader of Opposition calls GST the Gabbar Singh Tax. The Government dubs it the Good and Simple Tax. The reality, as usual, lies somewhere between the two. It is in this context that one needs to look at the moves to further simplify GST by trimming the rates down to two, 5 per cent and 18 per cent, with a possible sin tax of 40 per cent on goods like tobacco. After GST came into being in July 2017, States retained the right to impose taxes on petroleum products, alcohol and tobacco. When the figure involved is `24 lakh crore (monthly GST collections hover around `2 lakh crore), there is bound to be controversy, corruption and confusion.
It is not as if those in the Government were, and are, not aware of the problems of complexity. The late Bibek Debroy was the Chairman of the Economic Advisory Council to the PM. In November 2022, he spoke at length on GST, essentially batting for a single rate. He said: “Everyone’s mindset is one of trying to control. And, so we decide this particular item is elitist in nature so the GST rate must be higher. The moment we accept this mindset we allow for differentiation. The moment we allow for differentiation, we allow for subjective interpretation, (and) we allow for litigation. And it is therefore my submission before you that as a polity we need to recognise that the GST rate should be the same regardless of the product.”
This is one of the most lucid explanations of why a huge reform measure like GST, which created a single nationwide market out of dozens of fragmented ones, has faced controversies. First conceived in 2000, it went through a series of committee meetings till 2006 when the then finance minister P Chidambaram announced that a GST regime would replace the state-level sales, excise and Octroi taxes by 2010. A Constitutional Amendment Bill was tabled in the Lok Sabha in 2011.
The Bill that required the assent of both the Centre and States never saw the light of the day as many chief ministers felt that the proposed regime was against the federal spirit, and would be prejudiced against the states. The leading voice was that of the then Gujarat chief minister, Narendra Modi. After a regime change at the centre in 2014, when Modi became the prime minister, it took the late Arun Jaitley, the finance minister, all his skills as a peacemaker to get the states on board. GST came into effect on July 1, 2017.
When an old regime that was in place for well over a century is dismantled, vested interests get affected. Not surprisingly, GST was mired in controversies right from the beginning. Besides, states had their specific interests to protect. Then they had to be persuaded to accept the fait accompli that they would forfeit their right to collect Octroi, sales and excise taxes, and get their due shares from a central pool. Given this background, GST is without doubt a milestone and a millstone. It has benefits, which are distorted by lobbies.
The author has worked for leading media houses, authored two books, and is now Executive Director, C Voter Foundation
