TEETHING TROUB

Mint Asia ST - - News - BGY IREESH C HANDRA P RASAD

On 1 July, In­dia made an am­bi­tious shift to what it promised was a mod­ern, trans­par­ent and tech­nol­ogy-driven in­di­rect tax sys­tem to sharpen the com­pet­i­tive edge of a $2.3 tril­lion econ­omy riven by in­ter­nal trade bar­ri­ers and a raft of cen­tral, state and lo­cal taxes.

The goods and ser­vices tax (GST) was hailed as the big­gest tax re­form by In­dia in 70 years of in­de­pen­dence, a po­ten­tial game changer that would, at one stroke, unite the coun­try of 1.3 bil­lion peo­ple into a com­mon mar­ket by dis­man­tling in­ter-state tar­iff bar­ri­ers.

GST sub­sumed 17 cen­tral, state and lo­cal taxes, in line with the “one na­tion, one mar­ket, one tax” con­cept on which it was based.

The new regime had four tax slabs for goods and ser­vices—5%, 12%, 18% and 28%. Prime Min­is­ter Naren­dra Modi called it a “good and sim­ple tax”, play­ing on the acro­nym.

A lit­tle less than 100 days since it kicked in, the new sys­tem is yet to set­tle down. While many of the lofty and in­tan­gi­ble goals set by the gov­ern­ment will take time to achieve, the tran­si­tion has wit­nessed in­evitable shocks.

Busi­nesses slowed pro­duc­tion ahead of the roll-out of GST to min­i­mize tax com­pli­ca­tions while shift­ing to the new sys­tem. This in part led to eco­nomic growth in the April-june pe­riod de­cel­er­at­ing to 5.7%, the slow­est pace in three years, from 6.1% in the pre­ced­ing three months.

Busi­nesses and traders also strug­gled to mea­sure up in the first two monthly tax fil­ing cy­cles, mak­ing head­lines about in­ad­e­quate pre­pared­ness for the mas­sive tax re­form.

Growth im­pact

Go­ing by the ex­pe­ri­ence of other coun­tries that adopted GST, some econ­o­mists had pre­dicted that the tax re­form would boost In­dia’s eco­nomic growth rate by up to two per­cent­age points in due course as it elim­i­nates in­ef­fi­ciency in the tax sys­tem.

Un­der GST, tax is levied only on the amount of value added at each stage in the sup­ply chain. Busi­nesses get a re­bate for the taxes paid on raw ma­te­ri­als and ser­vices used, which will make them more com­pet­i­tive as it elim­i­nates “tax on tax”.

How­ever, the pro­duc­tion slow­down in the run-up to the July roll-out of the tax re­form has had an ad­verse im­pact on sup­plies.

To be sure, many econ­o­mists say the im­pact is tem­po­rary and that the sup­ply chain has al­ready started nor­mal­iz­ing.

“The dis­rup­tion caused by im­ple­men­ta­tion of GST was con­fined to the in­for­mal sec­tor of the econ­omy, and it has largely bot­tomed out in July. Its ef­fect will now ta­per off,” said Ra­jiv Ku­mar, vice-chair­man of NITI Aayog, the fed- eral pol­icy think tank.

Ku­mar en­dorsed the Asian Devel­op­ment Bank’s (ADB) eco­nomic growth fore­cast for In­dia. ADB, which fol­lows a cal­en­dar year, on 27 Septem­ber re­vised its 2017 growth fore­cast for In­dia to 7% from its July es­ti­mate of 7.4%, re­flect­ing “short-term dis­rup­tions” such as last year’s de­mon­eti­sa­tion and GST roll-out that it ex­pected to “dis­si­pate”.

Some of the im­pact on the econ­omy on ac­count of de-stock­ing of goods prior to GST im­ple­men­ta­tion has al­ready started eas­ing, said D.K. Joshi, chief econ­o­mist at rat­ing agency Crisil Ltd.

Scale of re­form

“In sec­tors such as lo­gis­tics, the ben­e­fit of GST is im­me­di­ately vis­i­ble in terms of ef­fi­ciency, while a boost to the eco­nomic growth rate that GST is ex­pected to fetch, is a medi­umterm goal,” said Joshi.

The un­prece­dented na­ture and scale of the tax re­form threw up un­ex­pected chal­lenges to pol­i­cy­mak­ers and to the IT in­fra­struc­ture.

While large busi­nesses have their own IT sys­tems and re­sources to meet the re­quire­ments of GST, the in­for­mal sec­tor of the econ- omy, com­pris­ing small and medium en­ter­prises (SMES), has borne the brunt of the tran­si­tion im­pact.

GST en­cour­ages the in­for­mal part of the econ­omy to get in­te­grated into the for­mal one by way of tax re­bates to reg­is­tered as­sessees. This com­pels small firms to ei­ther sign up for GST or lose their com­pet­i­tive­ness and, there­fore, their clients.

Large busi­nesses, which pro­cure goods and ser­vices from smaller ones, are al­lowed to re­mit taxes to the gov­ern­ment on be­half of their sup­pli­ers un­der what is called a “re­verse charge”. But nat­u­rally, large firms would pre­fer to do busi­ness with reg­is­tered en­ti­ties.

Ex­porters, another af­fected com­mu­nity, many of whom are small en­ti­ties, say that the dead­line ex­ten­sions for fil­ing re­turns de­lay re­fund of taxes paid on raw ma­te­ri­als.

In­te­grat­ing the in­for­mal econ­omy with the for­mal one is ex­pected to even­tu­ally lead to a wider base not only of in­di­rect taxes, but also of di­rect taxes.

Glitches

Tech­ni­cal glitches ex­pe­ri­enced by many as­sessees forced the GST Coun­cil, the fed­eral tax body led by Union fi­nance min­is­ter Arun Jait­ley, to ex­tend var­i­ous dead­lines for fil­ing sum­mary re­turns as well as de­tailed in­voice level de­tails for the months of July and Au­gust.

Dif­fi­cul­ties faced by busi­nesses in­cluded tax pay­ments not get­ting re­flected in their wal­lets at the time of fil­ing re­turns, ab­sence of cer­tain soft­ware util­i­ties and non-re­spon­sive­ness of the web­site of GST Net­work (GSTN), the IT in­fra­struc­ture back­ing the new in­di­rect tax regime.

The au­thor­i­ties said a large num­ber of tax­pay­ers try­ing to file re­turns on the last date has led to dif­fi­cul­ties.

A min­is­te­rial panel led by Bi­har deputy chief min­is­ter Sushil Ku­mar Modi has given In­fosys Ltd, the com­pany that set up the IT net­work for GSTN, time till Oc­to­ber-end to fix 80% of the tech­ni­cal prob­lems.

Com­pared with July, busi­nesses found fil­ing of re­turns and pay­ing taxes smoother in Au­gust as GSTN fo­cused on ad­dress­ing the is­sue of “unan­tic­i­pated user con­di­tions”. This refers to a cer­tain com­bi­na­tion of fac­tors that re­sult in er­rors in rare cases.

Traders say the IT sys­tem has posed grave dif­fi­cul­ties to them.

Newspapers in English

Newspapers from Malaysia

© PressReader. All rights reserved.