Many think Jaitley is making haste slowly. He can be reminded of the KISS principle.
Finance minister Arun Jaitley’s announcement that the sun
will soon set on 28% GST slab except for luxury items and the country can look
forward eventually to only two slabs – 5% and a standard rate between 12% and
18% (apart from exempt items) is welcome. But many think he’s making haste
slowly. He can be reminded of the KISS principle.
Many
think Jaitley is making haste slowly. He can be reminded of the KISS
principle.
KISS – Keep It Simple, Stupid – is a well-known
acronym and an accepted credo in business. Attributed to Lockheed aircraft
engineer Kelly Johnson, it was to urge his engineers to keep aircraft design so
simple that even a stupid person should be able to repair the aircraft with
ordinary tools on the combat field.
Bureaucracy, the world over, is usually
oblivious to the KISS principle. An Amazon ad boasts that it sells more than a
crore different products, besides myriad services, with more categories added
every day. In this context, asking bureaucrats to identify and categorise all
products and services for differential tax slabs in the GST regime is the
surest way to get into a muddle.
Empirical data from across the world on the
benefits of a unified single tax is incontrovertible. So, an unambiguous
directive to the bureaucracy is necessary to come up with just two categories:
goods eligible for zero tax, and all the rest to come under a single rate, say
10% or 12% or even lower. That means everything, except those specifically
exempt, is taxed.
This
needs bold and clear reformist thinking at the political level. Take the
so-called ‘sin’ taxes. They make no sense and are at cross purposes with
government’s overarching policies of generating growth and creating jobs under
the much touted ‘Make In India’.
A typical 300 room five-star hotel generates direct
employment to around 500 people, 90% of whom are waiters, housekeeping staff,
front desk and concierge staff, besides cooks, chefs, managers, financial and
clerical staff. There are a host of others employed in associated services such
as the spa, gift shops and swimming pool.
The hotel also generates indirect employment in
ancillary areas: it buys bed linen, furnishings, rugs and carpets (that are
periodically replaced, generating employment in textiles), air conditioners,
cutlery, electrical fittings, furniture … and consumes enormous quantities of
food produce. All these generate jobs and income for farmers, construction
contractors, artisans and other manufacturers.
Five-star hotels also generate foreign exchange
by attracting rich tourists and visitors and has a direct bearing on FDI. So,
it is unwise to tax these hotels to death. It’s the same warped view that has
high taxes on air conditioners, sanitary and chocolates or luxury cars. They
generate many ancillary jobs downstream.
One must figure out how to rev up the economy by
making the rich spend, and to move more people up the value chain to buy more
chocolates and ACs, instead of designing a tax system that keeps these products
out of the new consumer class’s reach. Similarly, in a roadside bakery for
example, officials have excelled in the art of creating confusion – bread is
zero tax, but the vegetable sandwich is in the 5% tax slab, hitting the
vegetable grower directly. Bun is zero but bun with a few raisins is 5%. And
cakes and chocolates are 18%! It’s the same with taxes on wine, rum and beer,
which generate huge employment and are the backbone of the grapes and sugarcane
farming and cocoa industry.
The low-cost airline model is successful because
of the KISS principle: elimination of all frills – food, water, freebies,
assigned seats, etc – single-class seating, point-to-point travel with no code-sharing,
direct internet booking, no middlemen … It’s an Udupi self-service hotel in the
sky.
Jaitley, instead of moving gingerly as has been
the case till now, should take a cue from the PM who hinted at major reforms in
GST, and do away with all the confusing tax slabs in one fell swoop. He can
then usher in a truly single low tax rate along with a list of exempt items. That
will ensure compliance, widen the tax net, boost the economy, create jobs and
increase tax collection as witnessed in many countries – a move that will be
both populist and well-regarded by economists. And a wonderful new year gift to
the country.
The
writer is an entrepreneur, founder of Air Deccan and a retired Captain Of
Indian Army. Views are personal.
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