Road to GST

Goods and Services Tax (GST) has always been a hot topic of discussion since the concept brought up for the first time in 2005. GST is India’s most ambitious indirect tax reform plan, to evolve and harmonized consumption tax system in the country. Everywhere it has been said that GST will increase our GDP, boost our economy by many folds etc. And yes, I believe the same and completely in favour of inclusion of GST which will reduce the complexity in Indian indirect tax system almost to none, make the system more transparent, finish the cascading effect (tax on tax) due to existing indirect tax regime, bring uniformity in tax regime across the nation and flourish the Indian economy. But my dear friends, everything has a cost and there are number of obstacles to make the journey difficult for GST. Have you ever think of the cost which we have to pay for implementing GST? Have you ever think of the hurdles which are on the way of GST implementation. Few obstacles are mentioned below:

1. Small scale industries (SSIs): With GST penetrating and making its way to Indian tax structure, the basic exemption limit in excise of Rs 1.5 crore will be taken off which take these SSIs to their death. 

There are lakhs of SSIs which are sustaining only for one reason that they are not required to pay excise if their turnover does not go beyond 1.5cr. This makes their product competitive in market, however, introduction of GST would not let them enjoy their benefit, and leads to increase in cost of their product which make these industries lose the competitive edge and thereby left for slow death. 

  

2. In India, amalgamation of two government bodies is next to impossible, as long as appraisals and promotions are linked to seniority and not on performance. For successful implementation of GST, integration of Sales Departments of 28 states and Indian Revenue Service (Central Excise and customs) is necessary, which is a tedious goal to achieve. Keeping this in mind, some officers came up with a concept of Dual GST as the middle way, which means state have their State GST (SGST) and centre have its Central GST (CGST). Idea seems quite fine, but then how this concept is different from existing structure of taxation.

For businessmen the concept remains the same. They need to file returns before both the departments, need to show balance sheet to both the departments, provide ledger entries to both. For them this would all be the same as it was earlier, under different name. 

Existing taxation structure is already facing problems like record maintenance, tax collection etc and with introduction of negative list (of services) in 2012 have exponentially shots up the count of tax payers under service bracket, henceforth burdening the government agencies due to shortage of staff. Introduction of GST bring another few more lakhs of population under GST umbrella which swell the requirement of skilled manpower and IT infrastructure.

3. Another road blocker is, throwing of various revenue generating items (like petroleum product, alcoholic product etc) in and out of the GST ambit. Petroleum products contribute the largest share to the states revenue (around 35 % in 2012). Therefore, states are not in favour of sharing their profit with centre. Similarly every state wants their respective revenue generating products to be kept out of GST which ultimately nullifies the very core idea behind the GST. As of now, 200 and 100 items (SGST and CGST respectively) lists have been issued, which are kept away from reach of GST. And these counts are increasing on daily bases.

4. In my view, inclusion of GST distorts the business houses and might somehow encourage the consumption of the products (like alcohol and cigarettes) which need to be discouraged or vice versa. Suppose for instance, say Karnataka is the biggest producer and supplier of alcohol which ultimately generate a lot of revenue for the state. While on the flip side say Uttar Pradesh (UP) is the biggest consumer of alcoholic product, so to discourage the consumption UP government raises the tax bar (different states have different tax limit depends on the intention of the government) which directly reflects in increasing price of the product. However, GST make taxes same throughout the nation which might ease the prices of alcoholic product in UP which somehow directly or indirectly encourages the consumption and pull down the states revenue as well.

These are the few hurdles which are creating obstruction in soothing flow of GST. I agree, everything which brings harmonisation to the environment, society, and nation or to anything has its cost and no one can ignore this fact. Everything has pros and cons. We couldn’t eliminate the challenges but at least we could try to minimise them.  In a country like ours, having 28 states, number of different cultures, different languages, varying mentality of people you can’t implement things like GST in one go and that to without affecting any sentiment of its people (democratic effect). Government of India has to take tough stance on GST and bring it in system without eliminating any product from the kitty. Yes, government will sense the heat of opposition from within along with rival but government has to do it because GST without petroleum and alcoholic product (which cumulative account approx 58% of indirect tax) does not make any sense. Though government’s tough stand would definitely hurt the sentiment of few businessmen and would bring down the revenue of states in short run. But in long run successful GST implementation would prove to be win - win for everyone.