Economy and Business

A better GST

Business is all about sentiment and the “animal spirits” that encourage firms to make investments that are essentially a gamble on the future.

Oct 9, 2017
Business is all about sentiment and the “animal spirits” that encourage firms to make investments that are essentially a gamble on the future. Today, that risk-taking appetite among Indian businessmen has weakened to the point where new investment project announcements during July-September were the lowest for any quarter in over 13 years, according to the Centre for Monitoring Indian Economy. Much of that diminished confidence, right or wrong, has been courtesy the problems encountered in complying with the new Goods and Services Tax (GST) regime — whether it relates to filing of returns or the cumbersome procedures for claiming refunds for taxes paid on input purchases. It is welcome, therefore, to see the NDA government at least acknowledging that firms, especially the smaller ones, are facing a genuine “compliance burden”.
 
 
Some of that burden has, no doubt, been reduced by the decisions taken by the GST Council headed by Union Finance Minister Arun Jaitley in its Friday meeting. Thus, businesses with an annual turnover of less than Rs 1.5 crore have now been permitted to file quarterly returns, instead of every month. The turnover threshold for availing of the so-called composition scheme —which allows small manufacturers, goods traders and eateries to pay tax at a flat 1-5 per cent rate without going through the normal tedious GST procedures — has been raised from Rs 75 lakh to Rs 1 crore. Also, the reverse charge mechanism — under which receivers of goods and services are liable to pay tax on supplies by unregistered vendors, thereby discouraging large companies from sourcing from such small entities — has been deferred till March 31, 2018. The other significant relief granted has been to exporters. They have been promised that all held-up refunds of integrated GST paid on exported goods will be expeditiously cleared. This, along with the creation of a proposed “e-wallet” facility from April 1 — in the form of an advance refund or notional credit that can be used to pay IGST and GST on inputs — may somewhat address the severe working capital blockage currently being experienced by exporters.
 
 
But all these essentially constitute reactive measures. Was the Modi government so unaware of the problems that a poorly designed GST was bound to create? Yes, it may have been the work of incompetent bureaucrats. Only they could, perhaps, have thought of having as many as five tax slabs from zero to 28 per cent and introducing provisions such as “invoice matching”, under which a purchaser cannot claim input credit unless the supplier’s invoice details match the former’s invoice uploaded on the GST portal. But the back-to-back implementation of both demonetisation and GST were ultimately political calls. If these have adversely impacted business sentiment — and the multiple tax slabs, invoice matching mechanism and glitches in the GST Network still remain — the government has to take equal blame and address the issues upfront.
 
Indian Express, October 9, 2017

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