‘Prepare urban, rural bodies for GST compliance’

MUKUL G ASHER

Professorial fellow, Lee Kuan Yew School of Public Policy, & Chairman, 5th State Finance Commission, Haryana

Do you share the apprehension around the state of preparedness of industry and governments with the GST roll-out slated for later this week?

The goods and services tax (GST) reform is a landmark initiative. It is remarkable that a consensus has been evolved among the Union government, 29 states and 7 Union Territories on its design, structure, and implementing regulations. None of the stakeholders will be fully ready by July 1. Global experience suggests that for any major public policy reform, there is a momentum and timing which if missed could delay the reform unduly. There will be challenges in transiting to the GST regime, but they are manageable. The GST requires a mindset change. Those with the ‘business-as-usual’ attitude and resistance to digital technologyenabled tax administration and compliance will find adjusting to the GST regime more challenging.

How effective have been antiprofiteering regulations in curbing price rise after the GST implementation in other jurisdictions?

International experience suggests that in countries with relatively sound macroeconomic management, the introduction of the GST (or VAT), or raising the rate of the existing GST (VAT) increases cost of living by roughly the same percentage points as the increase in the tax rate over a 6-to-12-month period. But, it leaves inflation rate essentially unchanged. The onetime increase in cost of living, however, does affect household welfare. To address it, most countries, for example Malaysia, undertake initiatives designed to keep prices of essential commodities for households under check by ensuring sufficient supplies and by partly compensating households through a GST rebate for a limited period, or through personal income tax credit for a limited period. Moral suasion and public shaming of those unduly increasing prices are also used. Anti-profiteering provisions are not common. Such provisions should be used only when there is compelling commercial evidence.

What is your assessment of GST’s impact on urban and local bodies and panchayat raj institutions?

Urban and rural bodies will be impacted by the GST in various ways. First, there will be some goods, services and assets which they purchase will be subjected to the GST. The input GST could qualify for input tax credit. So, urban and rural bodies will need to prepare for the GST compliance. Finance and tax departments of a state are appropriate agencies to prepare them. This will improve uniformity, access to GST expertise and assist learning and capacity building. Second, the role of entertainment tax, permitted to be levied by urban and rural bodies, will need to be examined by each State.