PARTY MAY BE OVER FOR NONTAXPAYERS
Millions of firms will be brought into the tax net as GST will require firms to upload their invoices to a portal to match them with those of suppliers.
Sachdeva sells auto parts in a busy market in central Delhi. Yet, despite having a flourishing business, he does not pay any tax.
Until now, his rundown premises and small scale operation has kept the business below the radar of India’s tax officials. Come July 1, however, “the party will be over,” says the 51-year-old.
A nationwide Goods and Services Tax (GST), set to come into effect on Saturday, has faced criticism for its complex design. But the country’s biggest tax reform since independence is promising to bring millions of firms like Sachdeva’s into the tax net, boosting government revenues and India’s sovereign credit profile.
The new tax will require firms to upload their invoices every month to a portal that will match them with those of their suppliers or vendors.
Because a tax number is needed for a firm to claim a credit on the cost of its inputs, many companies are refusing to buy from unregistered businesses. Those who don’t sign up risk losing any customer who has.
“I have no option, but to register with the new system,” said Sachdeva.
BOOSTING THE COFFERS
Improved tax compliance should shore up public finances, augmenting resources for welfare and development spending and giving a lift to the $2 trillion economy. India currently has one of the worst tax-to-GDP ratios among major economies at 16.6%, less the half the 34% average for the members of the OECD and also below many emerging economies. While there is no official estimate of the potential fiscal gain, some tax experts say the measure, after the initial teething trouble, would lift the tax-toGDP ratio by as much as 4 percentage points as the number of tax filers is estimated to more than treble to 30 million.
WINNERS AND LOSERS
The unorganised sector of India’s economy is vast, employing an estimated nine out of 10 workers. While staying outside the GST regime risks losing business, joining it will necessitate an overhaul of firms’ accounting systems and an investment in technology.
The new tax system requires three filing a month plus an annual return — a total of 37 filings — for each of India’s 29 states in which a firm operates.
Sanjiv Mehra, head of a traders’ body in Delhi, reckons a “prohibitive” cost could prove to be counterproductive.