GST is a big reform. India needs it badly. With this, financial accountability will increase in system. In real, Indian GDP is at point of break down. Massive job loss is sign of it. GST may revive the growth, hopefully. GST is a massive re-engineering exercise which will club excise, service tax, VAT etc in one tax. Idea was “One nation- One tax”.
Indian financial system is badly affected by bad loans and tax accountability. Corporate Loans and farm loans are hard to retrieve. Their write-off have to be recovered from tax payer. There too, only hard working middle class, private employee is paying tax in real. Leakages in system are many.
Though GST is a comprehensive system, it may take down Indian growth story, if not implemented in right spirit. In demonetization, we have seen long Qs. Implementation was pathetic. I noted down few loop holes which I noticed in GST implementation till now:
1) Multiple tax rates : Multiple tax on one product should have been ignored
a. 2 Cinema – 2 taxes (>100 rs)
b. 2 Slippers – 2 taxes (>500 sr)
c. 2 Hotel rooms (>5000 rs)
d. Colouring note book and other note books (0, 18%)
2) Too many initiatives: Multiple initiatives like digitization, tax optimization, or one tax, etc included in it. They could be separate initiatives. In India, where many companies still give hand written invoices. Many companies don’t have system in place.
3) Jugad – Every day new rule comes. It is good to be dynamic or real time. But rules should be limited.
4) No System readiness: Every consignment above Rs 50000 have to get register on government system. But system is not ready. IT department needs time till September 2017. Standby arrangement of truck movement will be jugad.
5) Worst transition plan : Transition plan for pending GRNs or services is too limited. In fear, accountants have planned to stop invoicing starting June 25. Credit availment rules so tight that it is terror for many accountants that he may lose genuine credit.
6) Too many returns : A small company or shop keeper have to file 37 returns per year i.e 3 per month. Do they have bandwidth for it? If one small firm has business in 3 states, it has to file >101 returns in a year. If you have every transaction detail in system, why do you need so many returns??
7) High GST Rates: GST rates are very high 28% on many electronic items or beauty products. That will spark inflation or not , I don’t know. But it will bring down sale.
Indian financial system is up for another test. Though, one time hard decision is needed in right spirit. However, Implementation should be smooth and hassle free. Rating agencies are watching us. We are just one grade above the JUNK. If anyone agency downgraded us, that will create havoc.
Lets hope positive. Looking forward for July 1.