Étatiste Crackpottery

Shortly after we posted Jayant Bhandari’s recent article that inter alia discussed  the new complex GST (general sales tax) regime introduced in India by the Modi government (see “The Lunatics Have Taken Over the Asylum” for details), we were contacted by Lakshminarayanan Kumaraapuram, a small businessman in Mumbai. He asked us whether we would be prepared to publish a comment he originally mailed to the prime minister’s “grievance portal”, so as to transform it into an open letter.

 

Let’s keep it simple… but not too simple. The chief surgeon gets ready to wield his scalpels and cleavers.

 

His comment underscores that small businessmen are indeed deeply unhappy about the new rules, and for good reason. As Jayant already mentioned, the effort one has to expend to comply with the new rules – which not even the bureaucrats who are tasked with enforcing them fully understand – is absolutely staggering (this includes having to file nearly 40 tax returns per year and being forced to ensure one’s suppliers’ compliance as well, with everyone being compelled to take on the role of unpaid tax collector).

We would note to this that the actions undertaken by the Modi government in recent months – beginning with the overnight demonetization of cash, to the introduction of a mandatory ID card, to the GST shenanigans – all remind us fatally of the interventionist measures many governments have eagerly implemented in nominally capitalist Western countries in recent years. The main difference is that India is even less suited to handle such impositions.

Whether or not this is intended, said measures all favor big, entrenched businesses to the detriment of individual entrepreneurs by essentially taxing and/or regulating small businesses out of existence. Financial privacy and economic freedom seem to be under attack from every conceivable angle almost everywhere. These ill-conceived stratagems, which appear to be based on the notion that citizens need to be placed under general suspicion and, to paraphrase Robert Nozick, that consenting adults have to be kept from engaging in voluntary capitalistic acts as much as possible, are supposedly inter alia aimed at boosting the tax revenues of assorted de facto bankrupt welfare states.

These brilliant ideas are cooked up by the same masterminds who believe we can actually get richer by debasing money, who are giving birth to Soviet-style “4 year plans”, are doing their best to roll back civilization in the name of “saving the planet” (demonstrating that their hubris knows no bounds) and  – considering various G20 communiques released in recent years – seem to have convinced themselves of the absurd fantasy that “economic growth” is something that is conjured into existence by government decree.

It is an apodictic certainty that whatever this bunch of economic illiterates comes up with (endorsed by their mediocre courtier economists though it may be) will not only fail to bring about the intended effects, but will end up doing the exact opposite. Experience suggest that once that happens, more, and in all likelihood worse, indignities will be inflicted on the tax serfs to “fix” the problem. Mr. Modi meanwhile seems intent on cementing his credentials as a trailblazer in étatiste crackpottery these days. IMF, World Bank and the largely execrable Western mainstream media seem duly impressed, while many of India’s poor are grinning and bearing it, presumably because they are used to being abused.

 

Indian bureaucrats groping the newest elephant in the darkroom.

Illustration via business-standard.com

 

Woe Is Us

Small businessmen in India seem less likely to succumb to passivity than the poor from what we could see so far, but they have so far been powerless to stop events from unfolding.

As Lakshminarayanan writes, right now he would be all for everybody going Galt:

 

“This is so silly an idea [the fact that about 40 tax returns are required every year for each province a company operates in] that even I am surprised it is part of GST. I have written to the PM’s Grievance Portal about this, but after a few days the status was “Thanks for your valuable feedback. Case closed.” […]

It is time for small businessmen to come together. Can small businessmen go on indefinite strike together? Close shop, whatever the losses. Let us see where the government goes for taxes.”

 

And here we go, with a poignant tale of woe…

 

Without further ado, here is what he sent to Mr. Modi’s “grievance portal” so that the intended recipient could proceed to ignore it with the alacrity of a power-drunk politician:

 

Woes of an Honest Tax-Paying Businessman due to GST

I am one of the probably millions of small businessmen who have been paying tax regularly over the last decade. I would like to highlight my woes and those of probably millions of other small businessmen due to the implementation of GST. While the hype generated by sloganeering that the corrupt will be caught may attract votes and win you elections, if your real purpose is to Make India Great Again [MIGA! ed.], then it is better done by implementing policies that make the lives of small businessmen simple and easy, so that they can focus on generating business and thereby provide employment instead of spending their money on filing returns.

From what I hear and understand, the only business that will flourish due to the  implementation of GST will be chartered accountants and the people who will gain employment due to GST will again only be chartered accountants. Even they will likely be hard pressed to get the people needed to man the job of filing returns. To get a measure of the problem please try and understand the plight of a businessman on the ground. Earlier, as a service tax payer, we would pay service tax every quarter and file returns twice a year. Also, we needed to file only one return every time. Now we are told that with the introduction of GST we will have to file returns every month, consisting of one return each for CGST, SGST and IGST  – which means we have to file 36 returns. Do you think it is right to burden small businessmen with such an onerous task?

Can you imagine how heavily this is going to weigh on small businesses? Also, can you truthfully say that it is a progressive step to make businessmen spend more time, effort and money on filing returns when the same time, effort and money could be used to increase business and create employment? I would also like you to look at the aspect of implementation. Can you imagine how difficult it is going to be to keep track of whether millions of businesses have filed their returns and taken action month after month (despite the power of computers)? To put this in perspective, suppose that ten percent of  all companies are not able to do this month after month, which means lakhs of businesses every month, which will inevitably become millions and crores in a few years.*

Don’t you think that this task will soon become too daunting? Now to go after that many companies, you are going to need a horde of enforcement officers. Thus, in the long run, the mandatory filing of returns every month will ensure that there will eventually be more enforcement officers and chartered accountants than businesses. It is highly regrettable that a Government that prides itself on focusing on creating jobs and improving the ease of doing business can take a step that is by its very nature regressive, as it wastes resources and does not add to the economy.

Therefore it is my earnest request that you look into this and ensure that life is made as easy as possible for the small businessman (who, by the way, is beset with umpteen problems without the need for government to foist even more on him) and ensure that he is able to focus on his business and contribute to the economy.

Regards, Lakshminarayanan

 

* Note: 1 lakh = 100,000, 1 crore = 10,000,000

 

Be Careful What You Wish For

Our correspondent from Mumbai is hopeful that at least the faces of those in charge will eventually change again. As he tells us:

 

The present Modi government is on a high because it keeps winning elections. Since poor people outnumber educated and rich people in the country, rhetorics and theatrics (Modi is a great orator) are doing the job of garnering votes right now and he appears invincible. But then, it was like this when Indira Gandhi was powerful too. Since each dog has its day, I am sure the day will come when the opposition will emerge stronger again.”

 

Now, we can understand that many businessmen are unhappy with Mr. Modi and his his recent policy initiatives, and admittedly, we are thoroughly ignorant of the policies espoused by the modern-day version of the Congress Party. But this may be a case of “be careful what you wish for”. Indira Ghandi was a prime example of the  slightly unhealthy predilection for “strong leaders” Indian voters appear to harbor.

She inter alia presided over a state of emergency, during which civil liberties were suspended, she ruled by decree and opposition politicians were jailed… she  waged war both within India and against neighboring countries, she was convicted of electoral fraud by the Supreme Court (a verdict she simply ignored), and she nationalized the banking, oil, coal, steel, copper, refining, textile and insurance industries, while putting what remained of the private sector into a corset of stringent regulations. She was also known for fostering nepotism and implemented socialistic “5 year plans”, which mirabile dictu, were exceeded every time!

The Indian Libertarian wrote about Indira Ghandi in 1969, six years before the state of emergency was declared:

 

“It would be difficult to find a more machiavellian leftist than Mrs. Indira Gandhi… for here is Machiavelli at his best, in the person of a suave, charming and astute politician.”

 

As Jayant Bhandari has already occasionally warned in his usually less than cheerful missives, whoever comes after Modi may easily turn out to be even worse. Then again, failed economic policies sooner or later always provoke corrective action, often because there is no other choice.

 

Sometimes one jumps out of the fire only to land in the frying pan…

Cartoon by Gary Larson

 

 
 

 
 

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One Response to “India’s GST: A Small Businessman Speaks Out”

  • Kafka:

    Ah, yes, the GST, a “value-added” tax. Touted as more fair, easier to administer, etc. But it doesn’t replace any other tax, so it is just another tax upon all the other taxes government foists upon small business to collect.

    My observation is the parasites outnumber producers. And the parasites are growing in number as producers shrink.

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