In India, the newly introduced Goods and Services Tax (GST) has led to quite some stress to the manufacturers and service providers and more importantly to the consumers belonging to middle income and poor class of the society. Most are not happy with GST today.
The basic idea to introduce GST was to remove the multiple tax system that was a part of Central and State government and to provide uniform tax system throughout the country. The GST tax model is divided into different tax slabs ranging from 0% to 28%. There are four slabs (5%, 12%, 18%, and 28%) and an additional ‘sin tax’ of 40% that is to be implemented on rare occasions.
When GST was implemented it was claimed that it would bring great changes in the Indian economy in the market and increase country’s GDP to 7%. The reality over a short span was however not to this expectation as the economy was already in shambles due to the demonetization. Despite all the shortcomings, the GST model was hoped to be a grand success over long run if it was planned considering the welfare of poor people and of course to protect the environment and our natural resources.
My Professor friend therefore felt that the GST should have been structured based on sustainability considerations. In his logic, goods and services that have negative environmental and social impact should be slapped with higher tax slab and those goods and services that help in improving the sustainability should be promoted with lower slab rate.
Professor told the PMO that Government needs to completely restructure the tax slabs based on sustainability considerations. So, he was called to Delhi for a discussion.
Professor was preparing his note and a speech in his study when I went to see him. He looked at me and said “Dr Modak, I was about to call you. I wanted someone to peer my note and give comments before I fly out to New Delhi. What I am proposing in the new GST regime is something simply revolutionary”. With this remark, he passed me his note and lighted a cigar.
I browsed the note and looked at the whiteboard in his room. It had several keywords and diagrams – all written in a haphazard manner – and in some places almost illegible. However, the scribbling on the whiteboard and a choked ashtray on the desk did show that Professor was brainstorming.
The word MIPS had taken a central position on the white board and was written in red.
What’s MIPs Professor? I asked. “Hope it is not Million Instructions Per Second?” I remembered conversations with my friends from computer science and engineering regarding MIPS.
“Oh, come on, I thought you knew this term Dr Modak.” Professor looked disappointed. He then explained
“The abbreviation MIPS stands for Material Input Per Service unit. MIPS is an elementary measure to estimate the resources demanded by a product or service. In the computation of MIPS, the whole life-cycle from cradle to cradle (extraction, production, use, waste/recycling) is considered like a rucksack. Recycling reflects the extent of the use of secondary materials. MIPS can be applied in all cases where the environmental implications of products, processes and services need to be assessed and compared”.
I remembered then the MIPS. Of course, I knew about this term.
MIPS as a concept is so much talked about in Europe over last two decades. The Wuppertal Institute for Climate, Environment and Energy introduced Material Intensity Analysis (MAIA), based on the MIPS concept, way back in in 1998.
MIPS considers abiotic and biotic materials, water, air, and earth movement in agriculture and silviculture. See http://wupperinst.org/uploads/tx_wupperinst/MIT_2013.pdf for more explanation. Of course, MIPS has its limitations (as it captures Inputs and not impacts and risks fully) but researchers over the last two decades have worked hard and improved the scope and computational methodology of MIPS.
Visit https://wupperinst.org/uploads/tx_wupperinst/MIT_2014.pdf to view the latest list of materials where MIPS is computed and applicable regions. MIPs is expressed in kg/kg.
If you follow this table, then you would see that aluminium will attract much more GST (say 4th slab) as compared to Steel (that could be placed in the 2nd slab). Electricity produced by a wind farm will be in the lowest tax slab of GST and all forms of plastic will be placed in the 3rd tax slab. So were the propositions from the Professor to the FM.
I thought of using MIPS to fix tax slabs under GST was a novel idea to drive consumption towards sustainability, but I had several questions to ask.
“But Professor, this would mean that we will need to first develop MIPS database for India. We cannot use Wuppertal database or for that matter the publicly available Eco Invent or databases provided by commercial software such a Gabbi.
Developing MIPS for India (even for select materials/products/services) could well be a national project involving IITs, Schools of Economics, Institutions researching on Natural Resources Management etc. This work will take at least 3 years to conclude to arrive at numbers that are reasonable and acceptable”
I had my doubts whether the India such a MIPS project was going to be feasible.
“I agree with you Dr Modak, but we don’t have that much time. Unsustainability is ticking. Remember that the tax slabs that we will use will follow a band or a range so even 100% error around MIPS computation will not cause any major concern. So, I don’t mind a quick (and dirty) first cut. We must begin somewhere.
By linking GST with MIPS we will raise awareness of Indian citizens about choosing materials and products on the ground of sustainability. The citizens will be more responsible. To save the GST, people will prefer materials and products with low MIPS. India’s Gross Ecological Product (GEP) will thus increase; and so the GDP and importantly sustainably”
I thought the Professor was right. He really was a visionary.
I realized that if implemented, India would be the first country in the world that will show a “sustainability basis” in its taxation.
I wasn’t sure however the FM and the PM will agree with the Professor as perhaps a sustainability led GST may plough a lower tax collection. Wont it then conflict with the very objective of GST and that of the FM!
I wished all the best to the Professor as he extinguished his cigar and called taxi to the airport. I erased the white board that featured MIPS and kept my mouth shut. I didn’t want to discourage him.
Suggested reading on MIPS Concept, Methodology and Applications
Calculating MIPS 2.0 Mathieu Saurat and Michael Ritthoff
The MIPS Concept (Material Input Per Unit of Service): A Measure for an Ecological Economy Martha Fani Cahyandito
Calculating MIPS – Resource Productivity of Products and Services Michael Ritthoff Holger Rohn Christa Liedtke Wuppertel Institute for Climate, Environment and Energy
Cover image sourced from http://www.sdgdatalabs.org/2017/06/14/gst-boon-or-bane-to-sustainable-development-goals/
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