India’s common tax is a work in progress
Apolicy measure as seminal as the Goods and Services Tax (GST) for an economy as large as India, understandably, cannot be implemented perfectly in one go. It would require modifications over time based on the feedback and empirical data from players involved. The GST Council in India has been doing just that and its latest decision to reduce the compliance burden on small and medium enterprises and traders is indeed a step in the right direction. Instead of three monthly tax filings, small enterprises in India would now have to file quarterly submissions. It is a good decision that’ll free up resources and time, both of which are crucial business elements of small enterprises. Even though such firms contribute just 10 per cent to the overall collections, SMEs are the lifeblood of India, just like any other developing economy, and comprise almost 90 per cent of the operating companies. A lot of exporters and small firm owners have been facing a crunch in working capital due to delayed tax receipts. The government has identified dates and also promised to expedite the process of refunds to lessen pressure. The Indian government has also allowed small service providers to operate across multiple states without registering with the GST network, which again is a progressive step that’ll ease operations. At present, anyone making interstate taxable supplies needs to register.
Besides, tax rates have also been slashed on 27 products, which include khakra (a crispy snack staple of Prime Minister Narendra Modi’s hometown Gujarat) and unbranded savoury items. Last month, the council had announced tax cuts on 40 items. Modi didn’t miss a chance to call this an early ‘Diwali’ gift and tout it as another people-friendly move in the run up to state elections in Gujarat. But more serious work needs to be done. Undoubtedly, the introduction of GST has been the most important indirect tax reform in India since its independence. It addressed some of the serious impediments to business but going forward the policymakers should look at streamlining the number of slabs and truly unifying them.