From the Editor
Taxing Times
http://www.businesstoday.in
D
espite the worries that the government and the GST Council members
had left too many decisions and details for the last minute, the Goods
& Services Tax (GST) system became operational at the stroke of mid-
night of June 30. Finance Minister Arun Jaitley, Revenue Secretary
Hasmukh Adhia and others in the team left no stone unturned to make sure
that the biggest tax reform was implemented smoothly.
A number of critics point out that the GST that Modi government has
rolled out is a far cry from the original recommendations. They also point
out that there are far too many rates and far too many issues with the cur-
rent GST system. And despite the prime minister dubbing GST as the Good
and Simple Tax, it is pretty complicated, though not as complicated as the
previous system. It has too many tax rates, cesses, and several goods outside
of the GST system – including petrol and diesel, real estate and vehicle reg-
istrations, alcoholic beverages, and some local entertainment taxes.
There is plenty of truth in all those assertions, but I suspect the govern-
ment knows it well. Some of the complications were not of its own doing –
the fact that the Centre needed to take all the states along, and allay their
specific problems and fears, forced it into
compromises that it otherwise not have
made. The number of rates had to do with
several states fearing that GST rollout could
create social tensions because it would make
a lot of so-called luxury goods cheaper while
making some essential goods more expensive.
That a single, uniform rate of 12 per cent
would be more favourable to the rich con-
sumers, and not the poor ones. Similarly, the
cesses have been put in place largely because
the Centre guaranteed any revenue shortfall
to states for five years, and needed to make
sure it had enough money to do so.
The first test of GST rollout will come
when the time for filing details of invoices and filing of the GSTR comes,
and also if there is a big rush for GST registration when the invoice filing
date nears. The fact is while all big and medium companies had registered
and created the proper systems for GST filing, an enormous number of
small enterprises, mom-and-pop businesses, traders, etc., had not taken
the plunge hoping that GST would continue getting deferred.
They will also have to embrace digitisation – a step a number of
traditional businesses have avoided so far, because they are not comfort-
able with it.
In the short-term, GST could cause plenty of pain to small traders, espe-
cially those who are not comfortable with digitisation. As a system, it does
favour bigger, more organised players who have digitised the entire chain
of vendors and customers and are in a position to claim full input credit
compared to those who haven’t such robust systems in place.
Despite the short-term pain, the long-term gains of GST will be enor-
mous and show up in better tax compliance, better revenues and a more
equal playing field.
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@ProsaicView
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