GST rollout worries

With the GST Council having filised the tax slabs for most items, the Centre is at the home stretch for rollout of Goods and Services Tax by its scheduled date on July 1. Eleventh hour hiccups remain, with states like West Bengal and some industrial sectors lobbying for change in tax rates. June will therefore be the fil month for some hectic negotiations while the Prime Minister and Fince Minister review preparations to implement what is touted to be the most wide ranging reform in the country’s indirect tax system. GST will after all replace a thicket of Central taxes like excise, various cesses, countervailing and special additiol duties, along with State taxes like octroi, VAT, luxury tax and purchase tax. Diehard critics of GST argue that it will be a massive blow at the country’s federal structure, as its constituent States will lose their independence to levy taxes. They point out that the Centre has already begun squeezing various channels of fund transfer to the States, notwithstanding the 14th Fince Commission increasing the tax devolution to States by 10% to 42% presently. Batting for the ‘One tion One Tax’, the Centre has assured that all decisions will be taken by the GST Council composed of the Central and State governments. The interaction between tax assessing authority and taxpayer will be elimited in an entirely online system, while the tax authorities can coordite their efforts through a single interface. This can only help India grow into a tax compliant society, Fince Minister Arun Jaitley has argued. However, doubts have been raised whether the Centre is fully geared to take on the huge challenges in rolling out GST in the one month remaining.

While GST will be a single countrywide tax, it will come in five slabs at nil, 5%, 12%, 18% and 28%. This multi tier tax rate structure will be accompanied by complicated rules; GST rates have been filized for 1,211 goods and services, while the rates for six contentious items remain to be settled next week. The online system is being touted as a reform that will check tax evasion. But with three monthly filings and one annual filing of taxes envisaged under the new system — a total of 37 tax filings a year — clearly, it will be a mammoth task to keep the GST network continuously registering collections from crores of taxpayers, matching credits and paying out refunds. Cash registers and vending machines will all have to be linked to the system. Many small businesses, which have never paid taxes before, are quite likely to add to the confusion once they go online in the new system. If they suffer disruption, as many did during the Central government’s demonetisation move last November, there is no knowing when the pain will end.  Meanwhile, many banks have reportedly begun scrambling to reconfigure their IT systems only recently, because under GST, banks will have to maintain State-wise revenue data while operating IT solutions to raise invoices for their business clients. Banks are complaining they will have to register separately in each State, while they had been hoping for continuance of centralised registration. In the aftermath of demonetisation, banks have been dealing with far larger cheque transactions — there have been rising complaints that many banks are taking longer times in clearing cheques. This has caused much trouble for general customers. If business customers too are put into difficulty because banks are not fully geared for GST in July, the chaos can well be imagined. This besides, banks have imposed a new range of tariffs on customers to conduct their cashless transactions. Under GST, the effective tax rate will become 18% for most categories of chargeable banking services. Once again, it will be bank customers who will bear the additiol burden. There are further worries that initially GST may fuel inflation due to higher taxes on a range of services, including fincial services like banking, insurance and investing in mutual funds. Fince Minister Jaitley has claimed GST will end up pushing the country’s GDP by 2 percent. But he is already on the backfoot over the latest GDP figures for the January-March quarter, which show that the country’s economic growth has slowed to 6.1 percent, the lowest in more than two years. He has attributed the slide to the global and domestic situation prior to demonetisation, but it is obvious that the currency flushout has taken its toll. Unless the GST teething troubles are not properly foreseen and prepared for, both businesses and common taxpayers are in for more hassles.