GST : negotiating the bumps

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The coming in of GST has been generally hailed, from likely and even unlikely quarters. P. Chidambaram as usual has not disappointed and has predictably threatened to let people know 'what negotiating advantage can be' from the point of view of gaining importance for Congress. So be it.

As a person in the domain, there is little cheer that it took 10 years to arrive where we are today in the month of September 2016. One does not want to be a wet blanket but there are many concerns which have not even been flagged for public review - notwithstanding, of course some luminaries' potential at monopolizing the limelight. A quick review will help. 

GST paid on procurements is to be available as credit against output GST liability. There are separate credit pools for 3 different types of GST - integrated GST, central GST and state GST. These would have to be maintained for each state. A quick number crunch would show that a company operating say in 15 different states would have to maintain 45 different credit pools, and 45 different output tax accounts. Currently the number of credit pools and output tax accounts are by far fewer.

Similarly there will be a phenomenal rise in tax compliance obligations. Today a service provider operating in 15 states can obtain a single centralized service tax registration. Under GST separate registrations will have to be obtained in each state. Multiplication of work does not stop there. Today a service provider files 3 service tax returns a year. In the new dispensation he will have to file 4 or 5 returns per month per state which totals up to 75 returns per month. This is the ease of business that GST would have caused! 

The purpose of flagging these concerns is not to fault GST. The purpose is to sound caution so that when the bill is raised it is again not lost in silly duels which some public figures indulge in. The sheer efforts to show "I am more brilliant than you" can cause serious damage to a public cause.

Fortunately or otherwise, India is full of "brilliant" people. Far too much "brilliance" than what the situation requires. The result being that there is a whole profession which has come up inventing legal ways of circumventing legal provisions. And hence we keep going around in circles with litigations which go far beyond the active professional human life span.

If a case in contested for 40 years the litigant who was 37, when he sought justice, will probably have to be reborn to get the same.

The above commentary may appear light hearted. It is, however, a serious one. Ask the people who are behind bars without trial and have spent more years in prison than they would have if they have been tired and found guilty. When such cases are discovered huge sympathy flows. Corrections are made but the systemic flaw remains.

GST should be an occasion to mark a new begging in simplification of the regulatory and the legislative process. In this case either every one swims together or sinks together.

The narrative does not stop there and many examples can be added to what would happen in multiplication of work, if due caution is not exercised at the right point of time.

There are other fault lines. There is transference of responsibility and liability of tax remittance to the customer from a supplier. This needs further thought. Essentially it is postulated that an if a particular supplier fails to comply with the tax correctly and  / or make the correct payment then the customer loses out on the input credit. It is a strange case of X being punished or denied something for act of Y.

When the writer discussed this with some tax experts he was advised that there has  been cases of a false representation by a small section of business and the administration was finding it difficult to locate it, in time. Hence, following the logic of cutting-off-the-head if the headache cannot be cured, the 'nihilist' has prescribed that the customer must bear the brunt.

This may appear logical to an arithmetic calculation. However business wisdom goes beyond numerical logic. One of the bigger risks of the GST system is going to be the chain like situation it will create and work under. Flaw in one link of the chain can cascade.

Indeed this is, simultaneously, its fundamental strength.

Illustrations for the above can be numerous. However, it is the message which needs the attention.

The nation has already lost much time. Currently there is jostling for credits and co authorship. There is no point in reminding people that history cannot be written, futuristically.

More to the point, there is a need to be sanguine and realize that this is a historic phase in nation's growth and economic history. It requires the wisdom of the kind which this country showed in the 20's and the 30's of the last century at the time of freedom struggle. If we want to script history, wisdom is the only ink which will endure. It will have to be written with the pen of foresight and statesmanliness which all parties will have to wield.

Read 90 times Last modified on Sunday, 23 April 2017 22:12