Malaysia scraps GST within 3 years. Should India go the same way?

A large number of modern-day macro-economists around the world support the idea of having goods and services tax as a mode of collecting revenue for the government. It is an irony though, in the recent past at least, its implementation in different countries has met with mass protests. Malaysia has gone ahead and withdrawn it within three years of its implementation.

The Pakatan Harapan alliance headed by Dr Mahathir Mohamad that claimed victory in Malaysia’s 14th general election, has decided to roll back the GST rates from 6% to zero from June 1. The alliance had promised to roll back the implementation of GST if chosen to power.

Abolishing the GST was a key promise made by the Pakatan Harapan coalition should it win the May 9 general election.

There were mass protests in streets of Malaysia ever since the GST was introduced in the country in April 2015 as the new law led to a spike in the prices of goods and services in the country.

India's case

India, too implemented GST in July 2017, and its experience has not been great. The only relief for the government in power is that people in the country are not as agitated as those in Malasyia.

Recently, the World Bank called India's GST structure, the most complex in the world. The report added that India has the highest standard GST rate in Asia, and second highest in the world after Chile.
"The tax rates in the Indian GST system are among the highest in the world. The highest GST rate in India, while only applying to a subset of goods and services traded, is 28 per cent, which is the second highest among a sample of 115 countries which have a GST (VAT) system and for which data is available," the World Bank report said.

If the people of India have not come out on streets despite having to deal with the highest tax rates under the GST in Asia, the government should consider itself lucky.

Moreover, the GST in India has had an indirect impact on the lives of Indians. The small traders and manufacturing units are having a harrowing time dealing with the complex tax filing system adopted by India under the GST, causing many units to shut their business, resulting in massive job losses. Under the GST a trader is required to file as many as 37 returns in a year, which makes it necessary for every trader- big and small- to hire the service of full time accountants, adding to the cost of business.

The government has failed to resolve the issue of slow GST refunds for exporters, leading to fund crunch for exporters. An RBI paper, 'Working Capital constraints and exports: Evidence from the GST roll-out' says that “ The implementation and refund delays under the new tax regime of GST seem to have led to working capital constraints for firms, which in turn might have hurt their exports in October 2017.”

India is expected to go to next general elections by April-May 2019. It is unlikely that the Opposition will make abolishing of GST a poll promise, but there is scope for a road-map that promises a better and simplified GST which hurts neither the economy nor the people who are dependent on it.