(Editor’s note: A month after the launch of the biggest indirect tax reform undertaken in the country, Firstpost takes a look at how businesses are faring under the new regime. There have been confusion and concerns, much of which are not yet addressed. This is the first of a four-part series taking stock of the GST’s impact.)
The Goods and Services Tax (GST) law came into force one month ago amid lot of opposition and confusion from all quarters. Initially opposition to GST was political with Opposition parties led by the grand old party, the Congress blocking GST in the Rajya Sabha, where the Bharatiya Janata Party (BJP)-led National Democratic Alliance (NDA) doesn’t have a majority. This is nothing new in India, where political parties play such games. It was also about giving the BJP a taste of its medicine because the party had blocked GST when the Congress-led United Progressive Alliance was in power.
Now the opposition to the tax regime has started flowing from the trader lobby that is worried and confused with various provisions of GST and its compliance and implementation. After one month of implementation of GST, we now take a stock of how GST is impacting and shaping the country and the way we do business. We also take stock of all the pros and cons of GST, as we see GST being implemented and the teething troubles that arise in the process.
The haste with which GST is implemented despite lack of preparedness of the government is a cause for concern. The law was passed without clarity on forms, rules, procedures, and worst – without the technology backbone and interface being ready. Many tax payers have faced problems in migration and registration on Goods and Services Tax Network (GSTN) platform due to technical glitches on the website.
However, this is not the first time that traders and businesses have come out on the streets protesting against a path-breaking policy reform. Remember former prime minister Late PV Narasimha Rao ushering India out of the License Raj and pushing for liberalization, and protests by Bombay Club against this move? The GST is BJP’s liberalization moment.
There is no doubt that this GST law is half-baked and ill-prepared. Worse, the government has miserably failed in communicating with stakeholders who are responsible for the success of GST. These are tax officials, business community and chartered accountants, tax counsels and lawyers.
Various sources have told this writer that the government has failed in communicating and taking constructive suggestions for improvement from trade bodies and professional bodies. This is one of the major reasons for the angst against the reform and the government.
However, now that the law has been enforced, there is a need for a middle path. Businesses have been vocal about this.
In case of indirect taxes, businesses are nothing more than collection agents of the government. They collect taxes from their customers and deposit that in the treasury. Defaming them with a series of messages floated by the ruling party supporters on social media and messaging apps is an ill-advised tactic to force compliance.
The government needs to understand the basic concerns of the business community and engage in a dialogue to address and resolve these concerns. This alternative is better than the government’s current strategy of employing dual approach of using Prime Minister Narendra Modi’s charisma and the propaganda machinery to push the law and force acceptance.
Trade bodies and the business community are also aggrieved because the government could have engaged the tax department in orienting them on the law and its compliance. A direct communication by the government would have assuaged their concerns and confusions.
However, the government itself was ill-prepared on GST. Until a couple of days before the launch, even tax officials related to excise, service tax, and VAT were not fully informed and trained. On the day of the rollout, VAT officials in some states were still undergoing training. That was when the government set up a helpline in call centres to help tax officials responsible for implementation and enforcement of GST. This should have been done in advance.
Certain provisions in the GST law are draconian. This author was on a panel discussion on GST organised by – IBN-Lokmat, and a co-panelist voiced the same concern about return of inspector raj and discretionary powers with tax officials that can result in harassment of businessmen – especially small companies. This concern has aggravated because in the past such discretionary powers have resulted in enforcement officials extorting bribes. Traders are concerned about how to manage their costs and conduct business without fear and harassment.
Traders concerned about these problems, have resorted to another extreme of opposing GST entirely. This kind of knee-jerk reaction is unwarranted and ill-advised. This is also happening due to politicisation of trade bodies and involvement of political parties in those associations. In turn, those trade bodies end up furthering the agenda and cause of a political party, instead of solving the issue.
The ball is now in the government’s court. It needs to proactively engage in dialogue with trade bodies and work on simplification of compliance and instilling confidence in the minds of the stakeholders. It should sincerely listen to concerns of and suggestions from the business community and work on addressing those concerns by accepting valid suggestions. In order to reform an existing system with a massive overhaul, active engagement and direct communication with the business community is necessary. Only then can it ensure success of its initiative.
The business community needs to realise that GST is the best thing to happen to the country. The reform aspires to bring all unorganised and informal businesses within the tax net. This will result in higher tax collection.
The byproduct of this initiative of bringing all the unorganised and informal businesses within the tax net is that their revenues would be accounted and captured in the national income calculation. This would translate in gross domestic product (GDP) growth in the medium to long-term. The business community needs to actively support this initiative and objectives of the government.
Let us not forget that this is the moment equivalent to liberalisation initiated by the PV Narsimha Rao government in 1991, which eventually led to exponential economic growth, increased business opportunities and eased up processes to do business.
To ensure the success of GST, businesses need to work on constructive solution-based criticism and the government needs to engage with an open mind with the business community and address their concerns.
Part-II to be published tomorrow: Textile sector concerns
(The writer is a Chartered Accountant by qualification and a finance and media professional. You can follow him on Twitter on @sumeetnmehta)
Updated Date: Aug 05, 2017 14:59 PM