The wrong options: 

The wrong options: 

Context

GST and Demonetisation are not the structural reforms that will boost the economy

What is GST?

• GST is an indirect destination based tax levied on the supply of goods and services. GST Law has replaced many indirect tax laws that previously existed in India.

Benefits

1. Level playing field for small traders in any part of the country.
2. More efficient neutralization of taxes to make our exports more competitive internationally.
3. It will create a unified common National market.
4. It will make India a manufacturing hub.
5. Reduction in multiplicity of taxes now leviable on goods and services, leading to simplification.

Disadvantages

1. Increased costs due to software purchase
2. GST will mean an increase in operational costs
3. GST came into effect in the middle of the financial year
4. GST is an online taxation system
5. SMEs will have a higher tax burden

What is demonetization?

• Demonetisation is withdrawal of a particular form of currency from circulation. Notes of a particular denomination cease to be legal tender. In other words, the notes lose their value as a currency.

Benefits

1. Direct tax collections rose 19% in April-July of FY18 as more individuals have come into the tax net.
2. The digitalization of money transactions has gone up substantially in the past few months, following demonetisation.
3. Demonetisation has improved transmission in the banking system and led to the greater financialization of savings.

Disadvantage

1. Cash crunch
2. Economic slow down
3. Corruption at different levels
4. Recalibration of ATM

What do the critics of these reforms say?

• Demonetisation was a temporary demand shock that brought the wheels of commerce to a halt. It failed to achieve its primary objective of mass confiscation of illegal wealth.
• GST, is a fiscal programme to increase the government’s ability to tax more citizens in the large informal economy, which also manages to kill the scope of tax competition between States.
• Both GST and demonetisation are measures to increase, rather than reduce, the role of the government in the economy.
• It is not the lack of sufficient tax revenues that has held back India, rather it is simply the lack of economic freedom which impedes ordinary individuals from seeking to improve their economic status without any interference from the state.

Way forward

• What India needs is not increased tax compliance among citizens, but pro-market reforms that will make the country a free and competitive marketplace.
• A government should allows free competition, without favouring special interest groups, either through pro-business or pro-poor policies, will also be sowing the seeds for improved living standards.