Mixed response to GST in TN, Sivakasi fireworks units shut shop

The Goods and Services Tax (GST) coming into effect from 1 July has evoked a mixed response in Tamil Nadu.

The AIADMK government is supporting it, while the Opposition DMK is opposing it. Traders, meanwhile, are divided on its impact in the long run.

Political divide

The Edappadi Palaniswami government, which has already passed the state GST Bill in the face of resistance from the Opposition DMK, which wanted it referred to a select committee, has sent its Finance Miniser D Jayakumar to Delhi to attend the grand inaugural function in the Central Hall of Parliament.

The DMK, which is boycotting the function along with the Congress, has decried the hype, pointing out that there was no such fuss when equally far-reaching measures, like bank and insurance nationalisation and land reforms, were brought in.

DMK working president MK Stalin also criticised the fact that the tax on textiles, powerlooms and hotels had been increased by 5%. “The tax on biscuits is higher than that on gold biscuits,” he said.

Articulating the reservations of the Congress, former Union Finance Minister P Chidambaram said in an interview to a television channel that “the plethora of slabs has bewildered the traders”, and in the short term, it will lead to a mess.

Sivakasi shuts down

While shopkeepers are keeping their fingers crossed, associations of small traders, restaurateurs and drug stores had already observed a one-day shutdown on 30 May in protest against the GST.

Starting on 30 June, manufactures of firecrackers and matchstick units in Sivakasi have begun an indefinite strike, demanding rollback of the GST to 15% from the proposed 28%.

The Tamil Nadu government has also come out in support of the Sivakasi units, which function as a cottage industry. The town accounts for about 90% of firecrackers made in India, with the turnover estimated to be between Rs 800 and 1,000 crore. There are nearly 460 fireworks factories, employing 40,000 workers. The Sivakasi area also accounts for 75% of the matchboxes made in the country.

A Asaithambi, president, Tamil Nadu Fireworks and Amorces Manufacturers' Association, has said the 'exorbitant' GST would affect eight lakh workers involved in the industry, which is already reeling under competition from China.

Small foundries in Coimbatore and hosiery units in Coimbatore and Tirupur have also expressed fears about the impact the GST will have on them. A representative of one of these units said the immediate impact will be on workers, who will be out of work.

The issue also figured in the state Assembly. Finance Minister D Jayakumar said the government would prevail upon the GST Council to retain the existing rates for crackers and match units.

Chidambaram's predictions

Reflecting the mood of consumers and traders, Chidambaram said he had gone round the country, and his views were based on the feedback he got. He told ET Now that “a plethora of slabs has bewildered the traders”.

However, Chidambaram did welcome GST, saying it was a more efficient tax because it captured nearly all transactions which were outside one tax net or the other, and avoided cascading of taxes. “If you administer one tax rather than a dozen taxes, it makes for a far simpler administration.”

He dismissed the assumption that GST will lead to reduction in prices. “Tax on goods and price of goods are two different matters,” he said. “Input cost, transport cost also determine the price. Besides, competition can drive down prices, lack of competition can drive up prices, increased demand can drive up prices. If there are internationally traded goods, imports can dampen prices, a fall in imports can increase prices. It is absurd to assume that the element of tax will decide at what price I sell my goods. This reflects something which I have always said – that this government just does not believe in a market economy. This government does not believe in market forces.”

Chidambaram also dismissed the anti-profiteering clause in the Act as 'outdated'. “It is completely outdated, contrary to all principles of economics. It should go, and take it from me, the next government, whoever it is, will repeal this clause.”