650 Checkpoints Hurt the Economy Bad. GST Wants to Fix That

Walayar/New Delhi (NDTV): Lines of idle trucks stretch as far as the eye can see in both directions along the tree-lined interstate highway at the Walayar checkpoint in Tamil Nadu, lines, waiting for clearance from tax inspectors that can take days to complete.

truck

Delays are so bad that textile entrepreneur D Bala Sundaram has stopped sending his trucks to the international container terminal at nearby Cochin, instead diverting them hundreds of kilometres to a smaller regional port and onwards via Sri Lanka.

“Our containers would get stuck for four to five days,” said Mr Sundaram, who runs a firm with an annual turnover of $150 million or Rs 990 crores. “Officials at the checkpost are finicky.”

The rollout of the nationwide goods and services tax (GST) from April was supposed to sweep away hundreds of checkposts on state borders, paving the way for the seamless movement of goods between different parts of the country.

But political opposition and the dilution of some of the tax’s key tenets mean hopes are fading that the checkposts will be demolished any time soon, a major blow for Prime Minister Narendra Modi’s reform agenda – and for the economy.

The rollout of the long-delayed GST regularly tops the list of demands made by CEOs of Indian and foreign companies.

Finance Minister Arun Jaitley calls the new sales tax a “game changer” that will subsume a slew of federal and state levies, making Asia’s third-largest economy one of the world’s largest single markets and bumping up economic growth.

But opposition parties prevented a vote on the GST in the last session of parliament, making a rollout next April unlikely.

Even when the tax is eventually implemented, concessions made to win support from states mean many of the obstructions to a customs union will stay.

For example, while the GST will be collected on goods and services in states where they are consumed, Mr Jaitley allowed a 1 percent additional levy on the cross-border transport of goods to please states with large manufacturing bases.

Items such as alcohol, tobacco and petrol have been kept out of the new tax bill. States have also been given the flexibility to fix their GST rates within a band, providing arbitrage in the inter-state movement of goods.

“Enforcement is definitely required, we cannot do away with it at any point,” said a senior state government official in Tamil Nadu. “We will need checkposts.”

Other provinces have similar plans to check tax evasion. States such as Maharashtra, which includes commercial capital Mumbai, are even erecting new checkpoints.

India has more than 650 interstate checkpoints, which studies say increase truck travel time by a quarter.

Road traffic accounts for about 60 percent of all freight movement in India and such delays, McKinsey estimates, inflate logistics costs to 13 percent of India’s gross domestic product.

These travails underscore the challenge for PM Modi, who has set an ambitious goal of improving India’s position on a World Bank “Doing Business” ranking from a lowly 142 of 189 to the top 50 by 2017.

Mr Jaitley views the GST rollout as the biggest push in achieving that target. He and his aides argue that, over time, higher tax collections and better compliance under the GST will encourage states to start dismantling the border checkposts.

“Once you start tracking sales online, there will be less need to have checkposts,” Rashmi Verma, said a senior official in the Finance Ministry’s revenue department. “The cost of maintaining these checkposts will far outweigh the benefits.” © Thomson Reuters 2015

2 Comments

  1. More the people’s time and merrier for the corrupt officials and politicians. If these checkposts are eliminated, the bribes would go down. Is that what the officials and politicians want? Probably not! Only in India do they have so many checkpoints – what a criminal waste of time, fuel, and money. Single point taxation needs to be implemented and this will eliminate these daunting issues.

    • Mr. Dinesh,

      You are perfectly right. The Government and the Municipal Authorities intentionally keep many checkpoints without any logic or validity. This is to make money on the sly and loot the public.

      Over 20 years ago, when the Government was mulling over to scrap the octroi check nakas, the Mumbai Municipal employees went on strike, not because they would lose their jobs, which was not the case – but because they would lose their haftas (moiney taken by force from the people).

      I knew of a person who was employed in one of the Octroi check nakas in the early 1980s, who was earning Rs. 4,000 to Rs. 5,000 per shift every day. That was in early 1980s and what it may be today? Therefore, I consider all ministers, politicians and government employees prone to corruption. One BJP Minister was saying that Dr. A.P.J. Kalam was nationalist. I wish to ask him, irrespective of ministers’, politicians’, civil servants’ and bureaucrafts’ idealogies, are they nationalists or will they sell their country by comprosing themselves to earn money to illegal means? Do these crooks serve the people? What India requires is a leader like Singapore’s late Lee Yuan Kew, who on taking over put corrupt politicians behind the bars. We need a leader who is secular, dynamic and result oriented? Not one, who just gives speeches when it suits him and, at vital times, he is not to be seen.

      There is no place for Octroi these days, simply because that was the only source of earnings for princes in bygone era, when goods were taken from one Kingdom to other.

      Politicians and their toadies and obedient servants (civil servants and bureaucrafts) are taking the people for a ride, because people are not united and do not question them. Politicians go on foreign tours, whenever it suits them and people do not know anything about it. So, this is democracy.

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