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DEMONETISATION AND GST : DID GOVT DO ANY HOMEWORK ?

By Vipin Pubby

Coming under severe criticism, even from among the cadres of the BJP, on the twin issues of demonetisation and Goods and Services Tax (GST), the NDA Government has backtracked and has undertaken the biggest GST correction by slashing rates on a whopping 211 number of items.

Even though the latest bunch of concessions would cost the government a revenue of Rs 20,000 crore, it had little choice in the wake of adverse vibes coming from Gujarat which is heading for a crucial election in the next few days. The BJP must have also received similar response from Himachal Pradesh, which went for polls last week, and that could have forced its hands as it can’t afford to lose Gujarat. The impact of the two “economic reforms” is expected to be much greater in Gujarat than in Himachal mainly because of the dominance of the trading and business community in that state.

While the government can take the plea that the relaxations or concessions show that it was open to criticism and suggestions, the fact is that the government had not done enough homework before it embarked upon the two major moves. Particularly the demonetisation appears to be the result of whims and fancies of a man and his close advisers.

No wonder nearly 70 amendments to the rules were brought in after the introduction of demonetisation last November. Most of these amendments were announced in the first two months. Some of these related to the amount of cash that can be withdrawn either from the banks or through ATMs. The government even modified deadlines for deposit of old currency.

Similarly the prime minister had publicly declared that those who deposit cash upto Rs 2.5 lakh would not be brought under scrutiny. This was aimed at housewives and others who preferred to keep cash handy for any emergency. Subsequently, however, even those who had deposited Rs 2 lakh were brought under Income Tax scrutiny.

In the case of GST too, several amendments have already taken place. In the latest ‘bonanza’ it pruned by nearly three-quarters the number of items under the highest 28 per cent slab. It also slashed the rates in several categories. The panel on GST decided that only the so-called “sin goods” be taxed in the highest 28 per cent slabs.

Indeed some of the taxes in different slabs had been causing a lot of confusion. For instance the rates for a particular variety of sweets was different from other variety. Then the rates were different if you carry the sweets home or consumed these in the shop itself. Also, the rates were different if you sat in an air conditioned room or in a non-air conditioned room of the shop. Similarly there was confusion on tax slabs applicable to certain items which fell in a different category. For instance, a popular snack, Kit Kat, has a slab of chocolate between two wafers. The tax slab was different for both so what would the sellers charge was the question.

Another major pain point for the traders was the complicated provision to file returns thrice a month. This had put extra expenditure on traders besides causing harassment. Now in a major relief the government has announced that those falling in lower categories shall have to file returns only every three months.

This has led to another problem for the average middle class manufacturers and traders. Earlier they could afford to give a three month credit to the wholesalers or resellers but now they do not have the cash reserves to allow that luxury.

The moot question, however, is that the government had not done enough ground work before rushing to impose demonetisation which sucked out 86 per cent of currency in one go and has seriously hit small and medium enterprises besides the unorganised sector. The harassment faced by the people for about three months after the announcement was deemed by the people as a sacrifice for the larger national interest. However none of the state’s objectives of demonetisation like curbing corruption or black marketing or ending counterfeit currency or even a cashless society has been achieved and people now want answers. They want to know why they had to stand in all those ques and go without money.

The frequent changes in the GST rates and rules too reflect the fact that enough ground work was not done and the government just pushed this Major reform without realising the gravity of the situation. In both the cases the government evidently did not go by the advice of the experts. Political leaders are not know-alls who can solve all ills so it is important that they take expert opinion before implementing something which can affect the lives of millions
Serious Governments do some gaming of possible outcomes, consequences and public reaction. It does not seem the Government did any risks and outcome meetings before announcing these two policies that have given people difficult time.

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