The BJP ruled states have been the guiltiest for not allowing the passage of the Goods and Services tax (GST). In this way they are perpetuating the disease of black money.

People across India deeply admire Baba Ram Dev, and they should. He has brought consciousness of yoga and healthy living to millions. But his solid achievement in one sphere does not make him an expert on black money. While his intentions are goods, he does not understand the economics of black money. 

Neither Ram Dev nor the BJP understand that black money held by Indian citizens overseas is only a very small part of the total black money generated within India.  Hence, the nation’s first priority must be to first get rid of black money within the country. And the best solution for destroying the black economy is to pass the Goods and Services Tax (GST). It will remove the incentive for businessmen and citizens to deal in cash because it creates an incentive to pay ones taxes.

Of course the government should try to bring illegal money lying abroad and force owners of this money to pay the taxes due. But the experience of all countries is that this is a very slow, complex and cumbersome process. While the government should try to bring in the foreign money, Baba Ram Dev should understand that the nation will gain far more if India gives priority to tackle black money within the country.

What is back money? Black money is generated every time a person pays cash in order to avoid paying tax. So, black money is basically stems from a transaction which has evaded taxes. When a doctor or a lawyer takes payment by cash and does not give a receipt he evades tax and generates black money. When a citizen buys toothpaste from a chemist shop but refuses a bill because the shop keeper informs him that the toothpaste will cost 10% more, he helps the shopkeeper evade taxes and generates black economy. 

The Goods and Service Tax will discourage cash transactions because it is a value added tax and the shop keeper will lose credit for the taxes paid at the earlier stages of manufacture and distribution if he sells without a bill. He will not be able to claim refund for the taxes already paid on the toothpaste. As far as indirect taxes, GST will make Indian businessmen and citizens more honest and law abiding.

There are other important benefits from the GST. Anyone who sells a product across India lives through the nightmare of state sales taxes, central sales tax, entry tax, turnover tax, service tax, excise, octroi—all cascading to make India perhaps the highest indirect taxed nation in the world. And also the most corrupt because each tax collector expects a bribe. Octroi is the worst form of tax, which was abolished by the advanced countries 100 years ago. In India today, a truck takes 40 hours to deliver goods from Delhi to Bombay. Of this, only 24 hours are spent driving; the remaining16 hours are spent negotiating bribes at octroi check nakas. Thanks to the Golden Quadrilateral, driving time has declined significantly. But the pain and corruption of octroi posts still remains.

The GST will replace all these indirect taxes and integrate it into one single transparent, frictionless interface between taxpayer and tax collector, and will integrate India  into one market. It will tax only the added value at each stage and thus lower the total tax burden on the tax payer. In some cases it will lower prices as much as 10%. Since it discourages cash transactions taxpayers will rise and government revenues will multiply. By eliminating the entire plethora of indirect taxes, transaction costs and corruption would also decline, and it will make us into a more honest nation.

If it is such a good idea, why does it get postponed year after year? The centre is very keen to adopt it. The finance minister called it the most important tax reform in India’s entire history. The problem is that the tax will have to be shared between the centre and the states. The states will lose the authority to collect their own taxes. Many states are suspicious that the centre will not give them enough money. But the centre has very generously offered them a grand political bargain.  It has promised to compensate them with lot more money than they collect today. Hence, most of the states have agreed.

But many states are holding out. Most of the hold-outs are the BJP ruled states. So, politics involved. This is curious because it was the BJP led NDA government of Atal Bihari Vajpayee which first proposed the GST. It was such a good idea that the UPA government accepted it for implementation. In UPA 1 finance minster  Chidamran worked with the states to get it accepted. In UPA II Pranab Mukerjee is trying hard to make the states agree. But the BJP ruled states are adamantly opposing it. With what face can the BJP criticise the central government for not bringing black money back to India when it is promoting domestic black money in India by opposing the GST?

The hurdles are not small because the GST law requires a Constitutional amendment. After the GST is passed by both Houses at the centre with a two-thirds majority, 50 per cent of states will have to ratify it through a vote in their legislatures. The UPA simply does not command these numbers, and this why it needs the cooperation of the BJP. The BJP, during its last general election campaign, had highlighted its commitment to the GST in its election manifesto. However, after the loss in the election, it forgot about the GST. The Centre has already written three revised drafts of the GST law which have been used to negotiate with states; the cabinet has already cleared the fourth draft.

This is where Baba Ram Dev is needed. A serious trustworthy economist should brief him that the GST law is far more important in tackling corruption and black money than trying to bring back the black loot from abroad. Given the Baba’s resources and his acumen he should try to persuade BJP’s state leaders to agree to GST. He has to tell the BJP leaders who oppose this excellent tax reform that they are promoting black money. The leader of the opposition in Lok Sabha, Sushma Swaraj, has said the BJP at the centre does not oppose it but the central government has to first persuade the states. So, if Baba Ram Dev is serious about corruption and black money he should fight in support of the GST!