Kiran Deshpande, Co-Founder, Mojo Networks & President – TiE Pune, shares his perspective on India’s biggest tax reform, and tells us why he believes that certain tweaks are necessary in the way GST is currently defined
GST (Goods and Services Tax) is an unprecedented reform for a complex, large and diverse economy like India. GST promises to streamline tariffs and make it simple to do business across the country. Good bye to excise duty, service tax, VAT, central sales tax, Octroi, entry tax, luxury tax, and various ‘avatars’ of road permits. Logistics and complexity of processes and paperwork must be costing India at least a single point in GDP growth. Kudos to political leadership across the spectrum who have contributed to GST since its seeds were sown nearly three decades back!
Having built a best in class Wi-Fi software technology in India backed by several global patents, my initial reaction on GST was, “will it simplify the logistics and alleviate the pain for those people who sell technology products or any kind of products across the country?” It’s heartening to note that everyone feels GST regime will not only simplify the logistics but will reduce the cost of doing business, adding to the country’s efficiency and its financial well-being.
However, there are wrinkles which need to be ironed out. I wish to point out two critical ones I am familiar with:
1. Wi-Fi devices that use a technology called MU-MIMO (Multi-user – multiple-input multiple-output) have higher tax slab than non MU-MIMO Wi-Fi devices. With priority on digitization, people living in rural India need high speed internet as much as those in, say, Bangalore or Pune. With Wi-Fi playing a critical role for end user connectivity, should we tax the technology that provides high capacity connectivity enabling more people to have high speed internet? It is also like a higher tax slab for raw material for a six lane highway than a four lane one. Does not make sense.
2. India’s lead in software services is unquestionable. Governments of the day demonstrated enormous foresight by giving tax exemption to software exports, helping grow the software services industry by leaps and bounds. There is growing aspiration to build software based intellectual property and significant work is underway across the spectrum of established companies as well as start-ups. GST on software products including embedded components that drive electronics is 18%. In the pre-GST regime, tax on software was service tax compounded by VAT making it 20%+. GST planner have unenviable task with massive push and pulls from diverse constituencies on the tax rate. However, software technology is a core to India as ‘daal roti and sambhar rice’, and thus deserves commensurate tax slab if not a complete tax exemption. It will hugely help Make In India, India Stack usage and definitely a large number of start-ups. Lastly, software finished products or components bundled with hardware must have a single GST rate independent of the type of the end product.
There may be scope for rationalization of GST on more items given its priority to the country. A colleague quipped, “GST is good news to honest tax payers as it simplifies life but bad news to tax dodgers. They cannot escape now.”
Uniform tax code has traditionally been associated with developed economies. India joins that club like it joined the Nuclear Supplier’s club or the Satellite club. It is even more creditable for a country like India with a relatively lower per capita to attempt this. India has genes of a developed economy but it’s a poor country. It’s a ‘poor developed nation’, as a ‘learned’ journalist wrote in a leading newspaper decade’s back.