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Almost 70 years after India’s first prime minister, Jawaharlal Nehru, gave his impassioned “Tryst with Destiny” speech at midnight Aug. 15, 1947 to mark the country’s independence from Britain, India’s current first minister, Narendra Modi, played out a similar midnight scenario to launch the Goods and Services Tax (GST).

No pain, no gain seems to be Modi’s motto, right from when he sent the country into a tizzy with his demonetization announcement Nov. 8. Hardly have the masses recovered from the shock of seeing cash being wrenched out of their hands, in comes the GST which went into effect July 1 and will impact the economy and businesses for months to come.

So, what has many people, particularly small business owners, worried?

“GST is a tax system of new India, of digital India,” the prime minister said in his midnight speech. “GST is not just a tax reform, it is also an economic reform and a social reform.

“GST is actually good and simple tax. Good because it frees up layers of taxes, simple because it helps return filing easier,” Modi said. “GST is an example of cooperative federalism, shows the collective strength of team India. Regardless of party and governments, GST council shows that upliftment of the poor remains paramount.”

Consolidation of India’s flurry of taxes

In simple terms, GST aims to modify India’s indirect tax system by consolidating all local and central duties such as VAT (Value Added Tax), central excise and octroi (duty levied when goods enter a certain state), make the tax administration more effective and turn India into a common market by removing fiscal barriers among states

Just a cursory glance at the price of some items subject to GST is enough to sew doubt if, indeed, the GST is aimed at uplifting the poor. For instance, a tax rate of 5% on life-saving drugs that treat diseases like malaria, HIV-AIDS, tuberculosis, and diabetes is expected to increase the price of these drugs. Until now, these drugs were exempt from excise and customs duties.

On the other hand, with the withdrawal of the 1994 Service Tax, liquor will be 6% cheaper at bars and restaurants.

On the other hand, with the withdrawal of the 1994 Service Tax, liquor will be 6% cheaper at bars and restaurants.

Two villages in Jharkhand, which did not have electricity, are powered by solar panels, which will now be taxed 5% more under the GST. This, despite solar energy being an effective alternative power source in a vast country like India, where electricity is at a premium.

However, things are not as bad as they seem. Under GST, all goods and services have been placed under four slab structures — five, 12, 18 and 28%, along with a tax on goods such as tobacco, pan masala (betel mix) and aerated drinks. Most services, except essential services such as healthcare and education, will come under the GST.

Broad political opposition not unexpected

Understandably, opposition parties, including the Indian National Congress, which for years has uttered the same mantra of replacing a flurry of regional and central duties with a single levy, stayed away from the symbolic midnight rollout.

Congress Vice-president Rahul Gandhi said the tax reform measure was being rushed through in a “half-baked” manner as a “self-promotional spectacle.”

Left-wing parties Mamata Banerjee-led Trinamool Congress and Tamil Nadu’s DMK also boycotted the event arguing that the rules and duties under GST will hurt small traders.

Interestingly, the boycott was in contrast with the unanimity and consensus seen in the multi-party GST Council, the decision-making authority headed by Finance Minister Arun Jaitley and including state finance ministers.

Besides opposition leaders, the multiple tax structure has also drawn criticism from traders, retailers and business leaders as many feel it will distort the system and go against the “one-nation, one-market” concept. Hardest hit are likely to be local brands, which either don’t come under the local tax bracket or end up evading taxes. Moving from paying no taxes to paying 18% under GST for soaps and 28% for televisions could lead to failure for several local brands.

On Friday, a number of prominent trade unions participated in strikes and staged protests. The trade unions oppose the “excessive” tax slabs and “complex processes” of the GST, The Hindu reported. Meanwhile, traders in Kanpur stopped the Jhansi Express in its tracks, while protesting against the GST, DNA reported.

Delhi’s trade unions join countrywide protests

As many as 40 trade unions in New Delhi extended their support to the countrywide strike, the Chamber of Trade and Industry said. On Friday, representatives of prominent Delhi trade unions held a protest at the Kashmere Gate market.

The Bharatiya Udyog Vyapar Mandal, which represents some 17,000 big and medium traders’ associations, also observed a day-long strike to protest implementation of GST, India.com reported.

On Thursday, as many as 50,000 textile dealers in Ahmedabad shut their shops seeking an exemption to the 5% GST on textiles. The diamond and textile industry traders in Surat also observed a strike. Gujarat trade union leaders said nearly 300,000 traders had extended support to the strike call across the state.

Local traders in Agra protested by reciting the Sundar Kand — part of the Hindu epic Ramayana — for “purification of the mind and soul of Finance Minister Jaitley, according to a report in International Business Times.

More protests seem likely. In Tamil Nadu, about 1,100 cinemas were to close from Monday as theater owners call for an indefinite strike against a new municipal tax of 30% in addition to the GST of 28%. The 58% tax on movie tickets is likely to deter moviegoers, resulting in huge losses for theater owners.

It’s ironic that Modi calls his latest initiative “Freedom at Midnight from tax terrorism.” Only time will tell if this will lead to tax reforms or go down in history as a financial terror attack on small and local businesses.

Amrita Mukherjee

Amrita Mukherjee is a freelance journalist and author. She has worked in esteemed publications in India and Dubai and she blogs on women's issues at www.amritaspeaks.com.