Party’s over for millions, as India launches GST

[Varun]

New Delhi: Rakesh Sachdeva sells auto parts in a busy market in central Delhi, just a few miles from Prime Minister Narendra Modi’s office. Yet despite having a flourishing business he does not pay any tax.

Until now, his rundown premises and small scale operation has kept the business below the radar of India’s tax officials. Come 1 July, however, “the party will be over”, says the 51-year-old, with a resigned shrug.

A nationwide goods and services tax (GST), set to come into effect on Saturday, has faced criticism for its complex design. But the country’s biggest tax reform since Independence is promising to bring millions of firms like Sachdeva’s into the tax net, boosting government revenues and India’s sovereign credit profile.

The new tax will require firms to upload their invoices every month to a portal that will match them with those of their suppliers or vendors.

Because a tax number is needed for a firm to claim a credit on the cost of its inputs, many companies are refusing to buy from unregistered businesses. Those who don’t sign up risk losing any customer who has.

“I have no option, but to register with the new system,” said Sachdeva, who spoke to Reuters on condition the name and precise location of his shop were not disclosed.

Improved tax compliance should shore up public finances, augmenting resources for welfare and development spending and giving a lift to the $2 trillion economy.

India currently has one of the worst tax-to-GDP ratios among major economies at 16.6 percent, less the half the 34 percent average for the members of the OECD and also below many emerging economies.

While there is no official estimate of the potential fiscal gain, some tax experts say the measure, after the initial teething trouble, would lift the tax-to-GDP ratio by as much as 4 percentage points as the number of tax filers is estimated to more than treble to 30 million.

“In future, compliance is going to be extremely crucial,” Rajiv Nair, chief executive officer at Kaya Ltd, told Reuters. “Since we are also responsible for compliance across the supply chain, we have to ensure that the suppliers we have are in a position to work with us in a compliant manner.”

Nair’s company, which makes beauty and personal care products, has just streamlined its supply chain, dropping vendors that were not going to be GST-compliant.

Other companies are doing the same. Elior Group, a French catering and food service company, said it has mandated GST-compliance as one of the eligibility criteria for its orders.

The unorganised sector of India’s economy is vast, employing an estimated nine out of 10 workers.

While staying outside the GST regime risks losing business, joining it will necessitate an overhaul of firms’ accounting systems and an investment in technology.

The new tax system requires three filing a month plus an annual return - a total of 37 filings - for each of India’s 29 states in which a firm operates. For smaller companies operating on wafer thin margins, hiring accountants and technical staff could substantially dent their bottom line.

Sanjiv Mehra, head of a traders’ body in Delhi, reckons a “prohibitive” cost could prove to be counterproductive.

“Compliance is needed for input tax credit,” he said. “But what if you are in a business where margins are strong and allows you to forsake credit?”

But despite its flaws, many analysts think the new tax will be good news for bigger established businesses, because it will sweep away an array of federal and state sales taxes, levied at different stages of the supply chain, that often result in double taxation.

The government estimates the GST will save companies around $14 billion because it will allow them to organise their warehouses and supply chains more efficiently.

Firms can now move to demand-based “hub-and-spoke” models used globally, rather than operating state-by-state.

“Those companies which can wring out the maximum cost efficiency are the ones investors should bet on,” said Ajay Bodke, head of portfolio management services at financial firm Prabhudas Lilladher in Mumbai. “All consumer-facing industries will be big beneficiaries of the GST.” Reuters

http://www.livemint.com/Politics/Ye...-over-for-millions-as-India-launches-GST.html

Another economic move from the current government. Time will tell how effective this will be.

 

[hussain123]

I hope this one doesnt end like demonatization.rather than adding millions to tax net,i fear if it turn millions jobless.

 

[Napa]

Another economic move from the current government. Time will tell how effective this will be.

This Forbes columnist has it right, GST will integrate and grow India's economy.

https://www.forbes.com/sites/timwor...s-the-opposite-of-gandhis-buy-local-silliness

 

[ShadabFakhar]

Got to give it to India, putting a criminal in charge of government means he knows all the tricks in the book.

 

[JaDed]

If BJP doesn't win next elections any Gov coming in next would reap massive benefits similar to UPA-1

 

[Couch Cricketer]

This is going to hurt India in the short term but if implemented properly would be really good in the long term. Biggest problem for India and Pakistan is the large portion of their economies are unofficial bringing that economy in the tax net would allow India into make larger investments on infrastructure for the future.

Sent from the mobile client - Forum Talker

 

[Gabbar Singh]

The problem today is that everyone wants Nordic quality public services but still want to pay UAE/Saudi/Qatar level taxes.

Modi used to oppose GST on political grounds and today the like of Rahul Gandhi are doing the same thing. The truth is both the BJP and Congress agree with it - something which doesn't happen often for domestic policies in India.

 

[Specialisttailender]

Implementation of GST is welcome, but its too high. 28% tax for buying a car ? This is ridiculous. People will come with loopholes to avoid paying taxes.

 

[kaayal]

Tbh it's a really good initiative for long term but the price for everything is high now. I hope atleast the price of petrol and diesel come down in few years....

 

[Specialisttailender]

Tbh it's a really good initiative for long term but the price for everything is high now. I hope atleast the price of petrol and diesel come down in few years....

That would never happen, fuel cost will only go up.

 

[ex-q-zit]

GST Council Agrees To Decriminalise Certain Offences, No New Taxes Brought

The GST Council on Saturday agreed to decriminalise certain offences and doubled the threshold for launching prosecution to ₹ 2 crore, Revenue Secretary Sanjay Malhotra said.

The Council could decide on only 8 out of the 15 agenda items due to paucity of time, Finance Minister Nirmala Sitharaman said, adding the items not considered included one pertaining to setting up of appellate tribunals for GST.

The issue of mechanisms to curb tax evasion in pan masala and gutkha businesses also could not be taken up.

No new taxes have been brought, Ms Sitharaman said in the deliberations at the GST Council's 48th meeting.

The Council, she said, has clarified what constitutes an SUV and attracts the tax applicable for such categories of automobiles.

Mr Malhotra said GST on online gaming and casinos was not discussed as the report of a Group of Ministers (GoM), chaired by Meghalaya Chief Minister Conrad Sangma, on the issue submitted its report only a couple of days back.

The report of the GoM was not even circulated to GST Council members, he added.

He further said the Council agreed to raise the threshold of launching prosecution to ₹ 2 crore from the present ₹ 1 crore.

Also, the GST on the husk of pulses was reduced to nil from 5 per cent.

The GST Council is the highest decision-making body of the one-nation, one-tax Goods and Services Tax (GST) regime. It is headed by the Union Finance Minister and all states and UT are represented in the body.

NDTV