The Goods and Services Tax (GST) regime has come into force from the midnight of June 30. It is termed as one of the biggest tax reforms since independence. Incidentally, there are many who do not know its full form that promises to bind the entire country into one unit. But one can understand its implications from the clearance sales aka pre-GST sale announced by almost everyone in the retail sector, be it cloth merchants, dealers in electronics or even jewellers.
Such has been the hype that the government has been speculating and predicting a huge jump in the growth rate after the tax reforms. And the excitement could be gauged from the fact that the government organized a huge gathering of chief ministers of all states, opposition leaders, bureaucrats and ex-chief ministers on the midnight of June 30. It is akin to how India got freedom 70 years ago. In this case, it is freedom from cascading taxes.
Even the brand ambassador of GST, Amitabh Bachchan, has been seen weaving a cat’s cradle between his fingers in the advertisement. The video indicates the kind of tax-net the country has been in for the last 70 years. Suddenly, the tangle is gone with Big-B repeating the favourite tagline — one nation, one tax, one market. The new tax intends to pull down the barrier that had existed for so long in the 29 states that form India.
There had been demands from various corners of the industry to postpone its implementation to the next quarter, which incidentally fell on deaf ears. No one from Narendra Modi to Arun Jaitley wanted to hear such noises. Mamta Banerjee boycotted the marriage-like function that the government organised. As I write this column, the Punjabi wedding-like gathering and function, is over. And we all will fall prey to this trap. We will end up paying higher for almost everything, from mobile services to the bread that we buy for our breakfast, to the cold drink, to the books and even school bags.
That small merchant who till now had a shed where he manufactured bed sheets or towels, too, will have to pay tax as no one will buy his product. The revenue that he generated could barely help him in meeting his expenses. Till now, he has been maintaining his bahi khata (accounts and ledgers) manually. And he himself was the accountant. Now, he would have to purchase a computer, raise online bills and file returns, something he would not be able to do without a chartered accountant.
And now approximately two-third of whatever he saved will go for uniting India under the garb of GST. A huge chunk of his profits will go to the chartered accountant, who may ruin him further, on the pretext of saving him from the tax authorities. The question is would he still be willing to continue his business? Or, will he start searching for a job to keep his household running? What would happen to the five employees who depended on the merchant for their survival?
This is not only the fear of one merchant but many people in the textile industry. It is not only GST that they fear but the number of times they will have to pay tax on the same product. Around 75 per cent of the country’s fabric needs are met from the power loom sector. The weavers pay tax when they purchase yarn for weaving. While the textile industry never paid VAT, excise or service tax, GST will be levied both for the weaving and knitting industry, something that has not gone down well with the small weavers and textile merchants. The industry experts say that a cloth goes through several processes before it is packed and made available to the end user. A GST of 18 per cent shall be levied at almost every stage, be it knitting, bleaching, dyeing, printing, compacting, embroidery etc.
One of the biggest concerns is the huge variety of rates and their complexity. The government says we have four slabs but actually there are eight. We have products and services to be taxed at 5, 12, 18 and 28 per cent. And then there are certain things which are exempt with zero rate. Diamond will be taxed at 0.25 per cent and gold at 3 per cent. We also have a cess for luxury items and the rate varies from 290 per cent to 1 per cent, depending upon the product.
The schedule listing the GST rates is a 213-page document, which has undergone several changes since its announcement a few weeks ago. Then, we have three types of GST -- Central GST (CGST), State GST (SGST) and Inter-state GST (IGST). It seems the concept of one nation, one tax, one market remains only in the minds of legislators. What appear on the paper are several taxes, several markets, several returns, several rates, several categories and many more!
Similarly, there is confusion over certain products, which may fall in two or more categories. For instance, what would be the rate of tax for a person dealing in sporting goods made of rubber? Under the GST, rubber should be taxed at 12 per cent while sporting goods fall under the 18-per cent category.
The biggest problem is the registration with the new system. Earlier, companies having different branch offices were required to register once but now the Act mandates getting a separate registration for every branch. Imagine, a company having more than 10 branches in one state will have to get 10 separate registrations. Banks are in a shock as they have to register all their branches.
Incidentally the government website http://www.gst.gov.in, which was launched by the central government on June 25, does not even have the feel and look of a website. The government claims that all infrastructure required for the migration from the existing taxation structure to GST is robust and 5 billion invoices can be punched in a month.
And there is no simplified procedure for filing returns. Of course, everything is online and the government will float a very simple format initially for July and August. But from September onwards, every registered entity will be asked to file three returns in a month and one annual return. In other words, 37 returns in all! What a simple calculation!
Comparatively, Australia has a standard GST of 10 per cent, Malaysia has 6 per cent and Singapore imposes a flat rate of 7 per cent. Yes, the countries do have exemptions but require very little clerical work. Most of the countries mandate filing of quarterly return.
Another concern is the way input credit will work. A trader or a manufacturer would like to pay minimum tax and would like to avail credit on taxes paid. Simply put, he/she can claim refund on the taxes already paid and would be liable to pay taxes only on the value addition. It also means that traders would like to work with organisations or people who are GST-compliant so that input credit can be availed of throughout the supply chain. Small firms, who had been transacting business, till date without filing returns and paying taxes, will automatically be weeded out of the system.
Be that as it may, GST will ring a death knell for many small entrepreneurs, something that the government could not foresee. It may relieve us from the cascading nature of the soon-to-be erstwhile taxes but the tangle that vanishes in the advertisement with a flourish, will remain intact. GST as enacted is a far cry from what was originally planned and conceived.
(The writer is a company secretary and director, communication, Deepalaya, and can be reached at firstname.lastname@example.org(Published on 03th July 2017, Volume XXIX, Issue 27)