The Constitutional (122nd Amendment) Bill, 2014 passed by both the Houses of Parliament and the race among states to ratify Goods and Services Tax (GST) is being hailed as a watershed moment in the history of Indian tax reforms. The unanimous support for GST cutting across party lines is being seen as the end of confrontational politics.

But it is not as simple as it seems. It’s a known fact that different corporate houses, especially big corporations, fund elections. The Association for Democratic Reforms says that “seventy-five percent funding of India’s six major political parties comes from undocumented sources”. Naturally, loyalties would be with the sources of funding.

Stanley A Kochanek had argued that “the business community itself is far too plural, heterogeneous, and insufficiently mobilised to articulate a consistent set of class interests and values”. He further asserted:

The Indian state is acting at the behest of an Indian business class. In the first place, Indian business is too weak to gain direct political gain of the country.

Corporate Unity

In the case of GST, all big corporations have come together for its passage and to thwart any barrier to their aim of making profits. Therefore, it is not just an end of confrontational politics.

Rather, big domestic and multinational corporations that were earlier divided have now understood the windfall gains of being united to unfairly appropriate growth. That is the very reason why all political parties are talking in a unified voice. That is why we witness regime changes but sponsors of elections remain the same.

The passage of the GST bill points to the coming together of corporate houses that fund political parties. (Photo: Reuters)
The passage of the GST bill points to the coming together of corporate houses that fund political parties. (Photo: Reuters)

Thus, there is no surprise that economic policies do not reflect any drastic or even marked changes except in nomenclature.

This is a serious threat to the competitive nature of the so-called free market mechanism. Therefore, it bares a loss of moral fibre among the traditional political classes and their bowing before neo-liberal capitalism.

The passage of the GST bill is also a direct attack on democratic decentralisation. It is against the very ethos of the constitutional spirit and the “co-operative federalism” touted widely by the present regime.

Consequently, the bargaining power of states and incentive-based development will be at the mercy of the central government. There is verifiable proof that establishes the inverse correlation among centralisation of power, authoritarianism and marginalisation.

Primary Source of Revenue

There is no denying that taxes should be rationalised and simplified. But centralisation is not the appropriate solution to this corrigible problem. What is required, instead, is increasing administrative capacity for tax collection to plug rampant tax evasion.

This should be coupled with rationalisation and simplification of the existing tax regime. But the government will hardly pay any heed to this because tax theft is largely done by those who fund election campaigns.

Ironically, in India, indirect tax – which is inherently a regressive tax – contributes nearly 60-70 percent to GDP. The share of direct taxes is a meagre 25 percent approximately. The government plans to bring down the corporate tax, a direct tax, rate from 33 to 25 percent in the next couple of years.

The historical experience of developed nations shows that in any progressive society, the share of direct tax is far more than indirect taxes. Therefore, income and corporate taxes must be the primary source of the government’s tax revenue.

More importantly, a larger share of direct taxes means more effective and efficient utilisation of public funds. This is because direct taxes hit pockets directly. So, direct taxpayers will raise their voice over any inappropriate use of the exchequer. Whereas indirect tax payers, being passive citizens, are unaware of the simple fact that they pay taxes indirectly.

Rise in Public Goods Cost

When GST comes into effect, the tax rate is projected to be around 20-25 percent. (Photo: Reuters)
When GST comes into effect, the tax rate is projected to be around 20-25 percent. (Photo: Reuters)

The GST being an indirect tax will push the downtrodden sections to a position beyond redemption. It will reduce peoples’ income. So, the purchasing power of people (especially the subaltern sections) will be adversely affected. There is imminent danger of losing the much-hyped tag of India being a 'demand-driven' economy. This is for the very simple reason that demand is directly linked to income generation.

At present, the total services tax rate is 15 percent. When GST comes into effect, it is projected to be around 20-25 percent, which may further rise. It will raise the cost of education, health and other basic goods and services without a corresponding increase in income levels.

Now, in the absence of low-cost, high-quality education and health, especially for India’s young population, can we achieve the ambitious target set under the Centre’s skill development initiatives? Will it not turn the benefits of the so-called demographic dividends into a demographic burden? It is in this sense that the GST is an autocratic and anti-people legislation.

No Objection to GST Is Disturbing

The GST is a project pushed by big corporate houses under the neo-liberal design. Its passage will increase the monopolistic power of big finance and capital. Consequently, micro, small and medium enterprises (MSME) will feel suffocated. The MSME sector is essentially a labour-intensive one.

Given the population of India, this sector is an absolute necessity and needs state patronage. Ignoring it will only further boost jobless growth, widen the already wide gap in incomes, and increase regional disparities.

The unanimous blind support of political parties and corporate-owned media is understandable. But the weak objection from the Left parties and the no-objection certificate issued by autonomous universities and other independent academic institutions is very disturbing and bewildering.

By hurriedly passing GST, we are ignoring the warning of Berle and Means: “The future may see the economic organism, now typified by the corporation, not only on an equal plane with the state, but possibly even superseding it as the dominant form of social organisation.”

The passage of GST has unfortunately heralded an era of merger of corporate power with state power in a more open and direct way. It goes against the very ethos of Indian Constitution's provisions and that of social contract to ensure social and economic democracy apart from political democracy. It’s a patent triumph of corporate capitalism over government capitalism.

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