PM Modi embraces ‘Grand, Stupid Thought’ on GST

Prime Minister Narendra Modi had ridiculed Rahul Gandhi’s description of Goods and Services Tax as ‘Gabbar Singh Tax’ and demand for a single and a lower slab of GST as a ‘Grand Stupid Thought’. Finance Minister Arun Jaitley had also tweeted, “Can a Hawai chappal and a BMW be taxed at the same rate?”

Someone tweeted a reply that a pair of slippers and a BMW could indeed be taxed at the same rate because of the huge price gap. A 10% tax on slippers costing ₹100 would fetch a tax revenue of just ten Rupees while the same rate of tax on a BMW car costing ₹50 lakhs would fetch a tax revenue of ₹five lakhs.

The announcement by the Prime Minister at an event in Mumbai, therefore, that the Government has proposed 18% or even lower GST on 99% of the products on sale, is a huge ‘U-turn’ ahead of the general election.

Initially GST was described by PM Modi as a ‘Good & Simple Tax’ and hailed the ‘one nation one tax’ as a major reform. It was however implemented in a hurry and with not just one but with seven different slabs, making it ‘one nation seven taxes’.

Both the Finance Ministry and Niti Aayog in the last one year bent over backwards to defend the GST and the seven different slabs. The Prime Minister in fact had asserted as recently as in July that tax on milk and Mercedes could not be the same.

But after electoral reverses in the states of Rajasthan, Madhya Pradesh and Chhattisgarh, the Prime Minister has proposed that 99% of the products be taxed at 18% or less in order to simplify GST, make essential goods and construction material like cement cheaper.

The proposal is expected to be on the agenda at the next meeting of the GST Council on Saturday, December 22. The three new Congress chief ministers Ashok Gehlot, Kamal Nath and Subhash Baghel are expected to attend the GST Council for the first time that day.

Congress president Rahul Gandhi, who is having the last laugh, welcomed the move and tweeted:

The Congress however launched a scathing attack on the Government and wondered what has changed in the last one year to make the Government take the u-turn. The party recalled that in 2017, before the GST was implemented, the Chief Economic Adviser to the government had clearly recommended a GST rate of 15-15.5 per cent and demonstrated that it was a revenue neutral rate. But “an arrogant Modi Government drunk with power, refused to heed to its own CEA,” the Congress noted.

The party also was quick to point out that after GST was rolled out on July 1, 2017, the GST Council has rationalised the tax structure at least four times, in October, November (2017), January and July(2018). If the Council modifies the rate again on December 22, it will be the fourth time this year.

Faced with traders’ unrest ahead of the Gujarat election, the Modi Government had slashed the rates on several products.

On the first anniversary of the GST, finance minister Arun Jaitley wrote: “Rahul Gandhi has been advocating a single slab GST for India. It is a flawed idea. A single slab GST can function only in those countries where the entire population has a similar and a higher level of paying capacity.

Being fascinated by the Singapore model is understandable but the population profile of a state like Singapore and India is very different. Singapore can charge 7% GST on food and 7% on luxury goods. Will that model work for India? Since GST is a regressive tax, the poor have to be given a substantial relief. Thus, most food items – agricultural products and the Aam Aadmi used products have to be tax exempt.”

It has taken some time for the PM and his Finance Minister to realise that a single slab of GST is indeed feasible and desirable.