Modi Takes a Leap With India’s Biggest-Ever Tax Overhaul
nytimes.com
nytimes.com
On the ground in Bangalore, the clock stuck 12 and every retail shop started giving receipts with the simplified tax system. Im sure there will be hiccups ahead but the start looks pretty neat.
The Indian govt. should be given honorary entry to YC. The world's biggest startup is going lean.
A retail shop of Bangalore(metropolitan) doesn't speak for entire India. The shop you visited already had a computer/software but ground reality is much different among traders in tier II & III cities.
> The Indian govt. should be given honorary entry to YC. The world's biggest startup is going lean.
The government face-planted themselves miserably with demonetization experiment. They thought it would be easy to muscle everyone to use electronic payment without understanding the ground realities. The economy is performing below expectations solely due to it and they still haven't disclosed what they have achieved(good) with demonetization.
They could have planned the implementation in stages so that the transition could be done smoother. The same is going to happen with GST. They can be anything but sultans of implementation.
We Indians are so resilient that without traffic signals we adjust, during floods we help each other without expecting the government - so we will be ok eventually. Wish the government cared for its majority of the people instead of catering to elitist alone.
You're completely missing the point of demonitization. Modi got elected partly on the promise of doing something about black money and corruption - which is what pulled down the previous government.
Demonitization was basically a way to demonstrate that he was keeping that promise. For months on the end, towns were filled with stories of the corrupt rich desperate trying to get rid of their unaccounted for cash and government officials getting raided.
In other words, it was primarily a political exercise designed to show he will take action if he makes a promise. The vicarious pleasure the common man got hearing about the discomfiture of the corrupt rich I reckon is more than sufficient to get his government re-elected and also give him some slack from people if the GST thing falls flat - given they trust him more due to demonetization.
I agree the common man can be easily be fooled by gimmicks and the BJP government is an expert in sugar coating gimmicks. Please read: http://www.dailyo.in/politics/demonetisation-noteban-six-mon...
I was just outlining that the political rationale is primary.
Today no one. Not one single person is taking cards or PayTm. If you wave a card in front in front of their face they ask you to withdraw cash from the nearby ATM and come. In fact its already a few months since I did a electronic transaction to buy anything near my home.
This whole act achieved nothing at the end.
Your best measure is Police constables, especially the traffic ones. They are back to asking bribes on the street. In Bangalore every 1 km has a police party doing this.
Is that really true though? Seems like the whole point of this was to surprise the market and force people into the banking system on short notice so then you can tax them.
But if you give people notice, then they have a chance to come up with alternative cash-like arrangements in advance so that when you take away their notes, they just switch to a different 'black money'-like asset.
Not saying this couldn't have been planned out better, but if you follow the logic then the 'big bang' change is inherent to what they're trying to do.
This article articulates my concern: http://www.dailyo.in/politics/demonetisation-noteban-six-mon...
Who will suffer due to improper implementation of GST?. Not the super rich or rich but everyone else. GST requires monthly three returns to be filed in each operating state and an annual report. How will small traders cope up with this sort of requirement with no government initiative?. Please read: http://economictimes.indiatimes.com/small-biz/policy-trends/...
In the article you shared, there are mentions of celebrated economists siding with both camps. I will leave up to the chosen government to weigh in those opinions and make a move.
Coming to GST - the earlier tax system was much more complex and leaky. If your turnover is below 75 Lakhs (small traders) you can opt for composition scheme which is even simpler. If your turnover is higher, it should be fair to assume your business is big enough to have a computer operator who can file 3 returns (excel sheet I guess) every month with benefits of input credit.
Invoices can be generated manually. Internet is required only to file the returns.
https://twitter.com/adhia03/status/881428128177901570 - Revenue Secretary, MoF
This is some day dreaming.
In a city like Bangalore, if it rains an hour. There are power cuts of up to 12 hours. Expecting people to invest in long back up UPS, internet infrastructure in every single part of India is bonkers.
To start with fix basic infrastructure first.
What's happening today is putting cart before the horse.
How long will this "short term pain" last?
Anyways, there are many products kept out of the GST purview [0] and therefore, this is like release 0.1a of GST. The idea that it will spur economic growth with the projections given is an exaggeration.
[0] http://www.hindustantimes.com/india-news/gst-adding-to-econo...
Yeah, the trick is to know when these "sometimes" are. For example, the "move fast break things" rule was applied for India's biometric unique ID card which resulted in people climbing trees to authenticate their cards to get their daily food [0], not allowing access to power/education/daily benefits [1] or transferring benefits to someone else due to errors and fighting to get your daily wages because of "system errors" [2].
Life is not software. There are some releases which you cannot patch.
[0] http://timesofindia.indiatimes.com/india/need-internet-to-bu...
[1] https://scroll.in/article/834418/by-making-aadhaar-mandatory...
[2] https://scroll.in/article/833487/aadhaar-trouble-how-a-woman...
Before Aadhar, these benefits would disappear due to corruption even before reaching the needy while with Aadhar, millions of people have suddenly got bank accounts and get direct Benefits transfer from the government.
The other context you might miss is that in general, the top rung of the civil service cadre is generally fairly competent (they're recruited from extremely competitive examinations, and in general not promoted from below). It's on them to generally take decisions on ground when intent and process don't match in things like GST rollout. I'm fairly certain they'll try to do their best to avoid adverse headlines.
Curious - What would make you think so?
> Before Aadhar, these benefits would disappear due to corruption even before reaching the needy while with Aadhar, millions of people have suddenly got bank accounts and get direct Benefits transfer from the government.
You are mixing up many things here. Bank accounts have got nothing to do with Aadhar. Bank accounts don't mean much when you do not have meaningful access. There is a digital and banking divide in India which the person who has Internet access find it difficult to understand. Once you read RBI's Financial Inclusion report you'd understand why.
Benefits via Aadhar have been grossly overstated - there has been a recent filing in the court regarding this.
> I'm fairly certain they'll try to do their best to avoid adverse headlines.
I'm fairly certain given the responses by people who control Aadhar - this wouldn't be addressed. Heck, Aadhar is passed as a "Finance Bill" when it clearly is not.
For decades people have been saying that the money from grants/subsidies/schemes for poor vanishes between the government and the recipient due to the multiple "middlemen" involved and cutting that out is the way to solve it. Now that is also not the acceptable solution? Then what is the solution that falls under the category of "meaningful access"?
> There is a digital and banking divide in India which the person who has Internet access find it difficult to understand.
Yes there is a digital divide but what does having bank accounts got to do with it? Computer illiterate people have been going to banks for decades.
> Benefits via Aadhar have been grossly overstated - there has been a recent filing in the court regarding this
The idea of Aadhar is to have an identifier like a social security number. It is not a unique idea and Aadhar is not the only way to do it. But the idea itself has merits - especially for financial transactions. So many of transactions in India have been hidden from the taxman because there was lack of the necessary setup to link/consolidate flow of money to a person/business. Aadhar + increased digitisation and reduction in (mainly high value) cash transactions makes tax evasion more difficult. If this idea doesn't have merit then what is your proposal?
These are things that are being done to address decades long problems and obviously that won't be perfect. If you have suggestions for improvements/alternative solutions, then feel free to list them. All I'm seeing is criticism without any suggestions.
You say that you need an identifier. We have one.
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Transactions were hidden from the taxman.
How does AADHAR fix this? IT doesn't.
You've fallen in love with the idea, without doing the patriotic thing, which is to actually assess it.
Yes cutting the middleman is the solution but there are various ways of cutting the middleman. The onus is on the people who support it to show that Aadhar indeed cuts the middleman and improves the said goal.
> Then what is the solution that falls under the category of "meaningful access"?
The parent comment attributed Aadhar to opening of bank accounts. I responded by saying that opening of bank accounts is not a good proxy for meaningful access to bank accounts. There's a difference.
> Yes there is a digital divide but what does having bank accounts got to do with it? Computer illiterate people have been going to banks for decades.
That was exactly the point, I asked. What has Aadhar got to do with bank accounts?
> The idea of Aadhar is to have an identifier like a social security number.
Yeah - except that Aadhar is not anything like SSN.
https://cis-india.org/internet-governance/blog/aadhaar-vs-so...
https://scroll.in/article/823570/despite-the-comparisons-ind...
> So many of transactions in India have been hidden from the taxman because there was lack of the necessary setup to link/consolidate flow of money to a person/business. Aadhar + increased digitisation and reduction in (mainly high value) cash transactions makes tax evasion more difficult. If this idea doesn't have merit then what is your proposal?
The same way it is been done in all other countries without a biometric ID card.
> If you have suggestions for improvements/alternative solutions, then feel free to list them. All I'm seeing is criticism without any suggestions.
An inherent flawed idea can't be made perfect. More reading on why : http://www.lse.ac.uk/management/research/identityproject/
Ok so there are differences between Aadhar and SSN - it is a different system, uses biometrics and has other differences. Just being different doesn't make it bad.
> The same way it is been done in all other countries without a biometric ID card.
And which of all those "other countries" is a developing nation, the size of India, with an endemic corruption issue and socio-economic challenges? What is the solution that worked in those countries you allude to, that would work for India?
> An inherent flawed idea can't be made perfect. More reading on why : http://www.lse.ac.uk/management/research/identityproject/
I went through the links on this page - half of them result in "page not found". Anyway, reading this gave me the impression of it being in context of UK. So I read this article about UK abolishing its national identity register[1]. The main takeaways seem to be that there were privacy concerns and they saved a good lot of cash. Frankly, with a country with a massive problem of corruption and huge amount of hidden transactions (none of which UK suffers from to the same degree as far as I know), I am (and I think Indian government is), more concerned about expanding the tax net and capturing lost revenue. Regarding the concerns about biometrics, we have had tons of schemes on which the corrupt middlemen have collected funds due to the poor. When the poor guy went to the disbursement office to collect the grants, he was shown a register where somebody had already signed and collected the funds. Biometrics avoids cases of impersonation and bank account helps direct credit of funds. I didn't see any alternative solution mentioned in the links you provided so if you have anything concrete, feel free to share.
[1]: https://www.theguardian.com/politics/2010/may/27/theresa-may...
:)
Joke of the century.
>>The other context you might miss is that in general, the top rung of the civil service cadre is generally fairly competent
In my experience while dealing with these people while working on my start ups. These people are the biggest morons you will ever meet in your whole life.
>>they're recruited from extremely competitive examinations, and in general not promoted from below
Passing an exam(Through rote memorization) some 30 years back, is no measure of productivity or efficiency in a bureaucratic career. These are highly corrupt people, who make it up in life through a 'Yes, Minister' lifestyle.
>>It's on them to generally take decisions on ground when intent and process don't match in things like GST rollout.
Do care to check upon how much an average income tax commissioner earns through bribes.
As far as I am concerned, release first, patch later worked wonderfully for UID, and it will probably be similar for GST.
Of course, the classic ad hominem fallacy.
> The food and money wasn't even reaching the correct people. The guy who climbed a tree would probably have gotten kicked around by a bunch of babus and still not got his due. There are problems with every new tech, but if you criticize everything it just makes no sense. Give credit where credit is due.
This right here is exactly the problem. Trying to find out a tech solution to a problem which is not caused by technology.
> As far as I am concerned, release first, patch later worked wonderfully for UID, and it will probably be similar for GST.
Easy to say that when your life doesn't depend on it.
> Of course, the classic ad hominem fallacy.
That's not ad hominem.
Before you say "Pakistan", think about it for a second. Don't fall for the security theater.
I am not opposed to tax reform but I think we are not addressing the root problem here.
I haven't seen any number that suggests so.
My point, is they really need to collect data or both sides are just going to keep spouting meaningless crap without any clear way to find an answer.
MVPs in government policy don't really work as in software. Things move slow, patches come late or never. Bugs form constituencies that lobby for the bug. With policy, you really do need to try your best to get it right the first time.
In a way GST will also pave way for higher tax sharing between centre and states and shall strengthen federalism - income tax sharing is the next in line. And slowly India shall become a union of states as it should have been.
If the Centre collected all the revenues, the states would be entirely dependent on the Centre. Sure, 42% of the revenue needs to be shared with the states, but the proportion is at the Centre's discretion. I would expect that the party in power at the Centre would funnel funds towards states which are electorally important (UP, Maharashtra) and away from ones that don't play much of a role in national politics (TN, North Eastern states). That's great if you live in UP, not so much if you're Tamil. In such a situation, I foresee that it could actually fuel resentment in states from where wealth is taken and cause the Union to weaken. We see this happening in Catalonia in Spain, for example.
I agree with everything else that you said, that there will be short term contraction but this simplified tax code will be helpful for businesses in the long run. Simplifying it even further and making it a central tax only would be a boon for businesses, but possibly not for the Union.
No, this is the whole problem. If the total sales volume to the buyer's country is under a certain limit the above holds true. When you reach the sales limit for that country, the seller is responsible for applying that country's VAT instead, and annually clear VAT with the respective tax office.
As you can imagine, keeping track of all these things can quickly become tricky. Not business ending tricky but hard enough to become a problem. A consumer should be presented with prices including tax to avoid surprises, but now prices have to be adjusted at the order stage.
But there would have been ways to make it much less painful to manage for small online businesses. For example a revenue limit (like 1M EUR) on cross-border sales before you have to start dealing with each country, or just an unified EU-wide VAT rate.
Selling from low-VAT countries is a problem because it is a fictional accounting move. If you buy a product from Amazon.co.uk, delivered from an UK warehouse to an UK address - or from Amazon.de, delivered from a German warehouse to a German address - then it is still billed through Luxembourg. Even though by all non-accounting measures it is business happening inside the UK and Germany. The only reason for choosing Luxembourg is tax rate optimisation, not because there's an actual place of business there.
It's understandable that most countries in the EU would want to keep taxes on business that happens in their country to themselves. If VAT exists at all, then it makes sense not to gift it to Luxembourg. So the rules were changed to remove this accounting trick.
http://www.npr.org/sections/money/2017/05/10/527803742/episo...
http://www.npr.org/sections/money/2017/05/12/528181998/episo...
Here is history of demonetisation in India from Wikipedia-
"The Indian government had demonetised bank notes on two prior occasions—once in 1946 and then in 1978—and in both cases, the goal was to combat tax evasion by "black money" held outside the formal economic system.[19] In 1946, the pre-independence government hoped demonetisation would penalise Indian businesses that were concealing the fortunes amassed supplying the Allies in World War II.[19] In 1978, the Janata Party coalition government demonetised banknotes of 1000, 5000 and 10,000 rupees, again in the hopes of curbing counterfeit money and black money.[20]
In 2012, the Central Board of Direct Taxes had recommended against demonetisation, saying in a report that "demonetisation may not be a solution for tackling black money or economy, which is largely held in the form of benami properties, bullion and jewellery."[21][22] According to data from income tax probes, black money holders kept only 6% or less of their wealth as cash, suggesting that targeting this cash would not be a successful strategy.[23]" https://en.wikipedia.org/wiki/2016_Indian_banknote_demonetis...
Its like "My manager(Govt) is making us(small-biz) fill status spreadsheets for 2-3 hours out of 8 every day. Why? Just because they can"
And I also worry about the IT infrastructure being implemented for filing these new invoices. The government has some very smart and efficient in house engineers - but we don't know if they made the backbone or if they outsourced it to the likes of TCS/Infy. For one, I have known a TCS tax filing implementation that fails regularly on the last few days of filing - they do some very bad implementations.
I get to talk to some small biz owners here, and very few of them had any clarity on GST as on 30jun. Most of them registered for GST numbers, but know nothing about compliances beyond that. Many don't even use software to create invoices. I got panic calls on "best/good/budget software for GST" on the last day. They didn't know what they needed. Nobody reads the rulebooks and even if they did, it would result into a throbbing headache with no output. So they rely on info from each other and the chartered-accountants who see their business booming.
Could it have been done with less haste? NO! But it could have been done with simpler procedures and a couple of months of education.
Infact, GST will not be a failure - Even if it is complicated, businesses are just used to adhering unnecessary complicated govt policies - they will adjust soon. But GST is hurting many small businesses right now. This will either lead to a bigger and newer black/gray money market - defeating the purpose do demonetization. Or it will make every Indian pro-tech. I'd assign equal probabilities to both outcomes, there is no middle ground now.
What we need to see if it becomes "One nation one tax" or "One nation, 29 taxes"
PS: For the record, I do believe that India has the best PM on this planet. I am a pro-BJP and anti-CONG (and anti-AAP). Please don't associate my criticism with political sides.
How can you justify Modi as the best prime minister in the world when he tacitly approves the killings of Muslims? A group he should also be the leader of.
The Hindu extremists are emboldened under his watch. In many areas, India is going backwards under his watch.
He's far from the best in the world. You just haven't bothered to look.
people are getting lynched every week because of stupid cows and Modi's silence condoned that behavior. It was only after coming back from US/Netherlands did he mention anything about it. It's still not acceptable IMO. people should be allowed to eat whatever they want.
He's not the best PM but he has the best PR team in the world.
Innocent people are the ones being killed with zero consequences for the killers
To understand and perceive the reality, you have to live in India for few months (say 6 months but even 2 years may feel less). And try to live as a commoner here, get some job (not volunteer/NGO work), travel-to-work, travel to different cities/villages, go to festivals, talk to people and allow typical intrusive social behavior.
You do not have any information about PM from other countries, besides what you read in news.
Trudeau has not spoken out against these. He has recently contrasted Canadian immigration with US immigration, and in the process is inviting extremists from all over the world.
These are signs that Islamic extremists are emboldened under his watch. In fact ISIS directly called for attacks on Canadians on Canada day. Trudeau has not spoken out against these either, so he tacitly approves the killing of Canadians.
As far as India goes, there were spontaneous NotInMyName protests without Modi being present. There are more killings in all the muslim middle-east countries in a single day, than in India in a month. It is not going backwards.
But i reaffirm your point. Implementation is going to be another points of damage to GDP over the next few months.
Hopefully unlikely demonitization, there should be no hidden costs which surface months later.
But as I said, they are replacing an old-complicated tax system with a new-complicated tax system. Indians are used to living with complicated systems. They will adjust soon. Just hope that the IT backbone does not falter meanwhile
This GST was probably what was possible right now and full marks to the govt. for getting it done. They made compromises which will nullify immediate gains, but at the same time made sure that the structure is put in place to get full benefits over time.
That being said, even in the current form it seems to be a huge jump from what we had.
You are right! While they can improve from there, anything strong would not have sold, not just now but even later. This govt has a very strong mandate and it would have been stupid to wait for a stronger one.
So your tax would be GST + State GST.
The idea one nation one tax is wrong because if you purchase a car in delhi it is not the same price as the one purchased in nagercoil,TN. Had it been the same price then "One Nation, One Tax" was relevant.
For example, if GST on a product is 18% then this tax includes CGST of 9% and SGST of 9% (which means 9% tax will go to state government and 9% to central government).
There are no separate taxes by states and central govt except on alcohol, petroleum and electricity.
In the UK I do a VAT return 4 times a year!
So effectively 12 + 1 returns every year
EDIT: A tweet from the secretary himself: https://twitter.com/adhia03/status/881428128177901570
[1] http://indianexpress.com/article/business/economy/revenue-se...
>> India, long one of the fastest growing economies in the world, ...
The number given in support of the above statement is the annual GDP growth rate. However, as I understand, this is before adjustment for inflation, which also is high in India. I have been unable to find the numbers for inflation-adjusted "real" GDP [1] for India and other countries. Is India still the fastest growing economy when the real GDP is considered?
[1] https://en.wikipedia.org/wiki/Real_gross_domestic_product
Global numbers can be found here: http://data.worldbank.org/indicator/NY.GDP.MKTP.KD.ZG
Global inflation numbers are also in World bank data: http://data.worldbank.org/indicator/FP.CPI.TOTL.ZG.
"official" data sources and aggregators (national statistics bureaus), IMF, World Bank, FRED can be heavy on economics jargon. Trading economics is probably a bit friendlier for the layperson.
In the meanwhile, the overall inflation as felt by the residents (in the cities where I am exposed to) is much higher than ~2% quoted, nearly around or even higher than the GDP growth rates mentioned.
Again, being a newbie, I would like to hear back if my understanding is incorrect.
Set up Massive Open Online Courses (MOOC) and virtual classrooms
Do u even know about NPTEL? It was even there before Feku became PM.
And fully-electronic financial reporting is in itself a Trojan for electronic sales accounting.
And Germany is also a federal nation which has had this unified tax for decades.
That link seems to be splitting semantic hairs, VATs usually apply to goods and services equally.
That's the case of Switzerland (also a federal nation) with a standard 8% VAT on all goods and services (some goods and services have reduced and null rates). It's also the case of non-federal countries with a VAT e.g. France.
That non-flatness leads to a ridiculous situation when restaurants or other places serving food have to charge different rate depending if the food is take-away or will be consumed inside. The latter is considered a service and must be charged with 25% tax while the former is treated just as food with 15% tax.