The GST Impact

With the ring of the bell by the Prime Minister at midnight, India’s biggest taxation reform rolls out in all its royalty, as a result of consistent efforts of the Indian administration for more than a decade.

The experience of over 160 countries that have implemented the GST is that GST provides for a simpler tax collection and makes it very hard to evade taxes. For legal businesses it makes running their concerns easy and also reduces the competitive disadvantage they traditionally had from tax evading competitors.

Like any change in tax structure in any economy, this will result inflation in the short term. The prices of most products and services are expected to go up over the next one year. That has been the case of most countries when they adopted GST. The fear of inflation is one reason that successive Indian governments have been going slow on GST implementation, so there never was a better time than this for India to rollout the GST as the inflation has been decreasing from past couple of years and has come down to as low as 2.99% last year (https://tradingeconomics.com/india/inflation-cpi). Also, with the implementation of GST, a sizable number of goods are getting cheaper immediately. ( http://economictimes.indiatimes.com/news/economy/policy/gst-rate-guide-know-all-the-things-that-will-get-cheaper-after-midnight/articleshow/59386840.cms).

Some goods might have an immediate price increase, but once the input credits kick in, and the business start realising the end of distorting effect of tax cascading, they might also get cheaper. It is also likely for the government to bring the slabs down eventually, as they are getting an overall bigger tax base.

Now with the streamlining of the tax laws, even the local businesses would not find it much difficult to compete Pan-India. And this increased competition definitely makes the goods and services more economical for the consumers. But one of the most important changes that the GST shall bring in is that the nakas/checkposts in state borders would be removed, and that means two things: Lesser corruption and faster movement of goods. The cost and time for transportation will significantly reduce, resulting in efficient utilisation of the Infrastructure. This means that the goods can be made available to you both faster and cheaper. And the faster transportation also decreases the wastage in perishables, while saving a lot of working capital for the entities (Since faster moment of goods decreases the operating cycle). As you would’ve observed by now, the effect is multifold.

Key issues arise concerning the rate of GST being as high as 28%, whereas the same is 12-15% on average, in 160 other countries. It is hard to justify higher tax rates anytime, but it must be remembered that India is a tax averse country. Many of us don’t enjoy paying taxes, and there is also a saying that Indians’ favourite pastime is Tax evasion. As reported by an article in Economic Times, only 1.9% of the total population pay their Income Tax. (http://economictimes.indiatimes.com/news/economy/policy/why-income-tax-payers-in-india-are-a-small-and-shrinking-breed/articleshow/56929550.cms)  So, India has to extract its tax revenues from the Indirect taxes. This could be seen as justifiable measure, as the stats bring it to our notice that the Income tax payments from these 1.9% of Indians exceed the Indirect tax payments by all of the Indians including these 1.9% people. (http://www.mospi.gov.in/sites/default/files/statistical_year_book_india_2015/Table-6.1-6.2-6.3_0.xls) And this hasn’t changed much overtime.

Concerns also rose about the increased burden of filing the detailed returns, as India as a culture never gave much importance to compliance. There always was one answer by Indian businesses to every request of Compliance- ‘No’. But the scenario is changing off-recent, (http://www.forbesindia.com/blog/business-strategy/india-catching-up-on-international-trends-on-compliance/) with the corporate governance reforms brought in. The Indian businesses were never more open to compliance than now. And this move by government would give a huge boost to the developing compliance culture, while inculcating the habit of culture among masses. The businesses change their motto to ‘Satyam vadah-Dharmam Charah’ Tell the truth and Perform your duties.

The requirement of IT Infrastructure and Accounting focus is considered a bit burdensome. This might be an issue for many people since improper record keeping could result in loss of Input Tax Credit. But still, the provisions have to be read more clearly as to get the proper idea. In case of transactions between two registered business (B to B), every single invoice has to be uploaded. In case if the transaction is between registered and unregistered person, the invoice wise details have to be uploaded only when the transaction is inter-state, and is of the value above Rs. 2.5 lakh. And all the “IT Infrastructure” the tax payer ever needs is a Computer with a working Internet connection, which is not so difficult for us to have now (#JioDhanDhanaDhan).

GST seems to be have received well by the people, as the markets witnessed a rise by 1%, on the first trading day after its implementation. (http://economictimes.indiatimes.com/markets/stocks/news/5-factors-that-drove-the-300-point-rally-in-sensex-post-gst-rollout/articleshow/59420679.cms) and are constantly are on the rise since then. Slowing automobile sector has received a major boom, with reduction in prices of most of the vehicles, and so is the case with many other major sectors. Crucial times lie ahead, as the real challenge lies before both government and the businesses to properly implement the GST, but the change definitely seems to be on the positive side, and we the people of India welcome it.

Cheers!