Thursday, 4 August 2016

THE GST : CELEBRATION, EUPHORIA AND THE PRACTICAL REALITY

THE GST : CELEBRATION, EUPHORIA AND THE PRACTICAL REALITY

The GST bill – the single biggest economic, and, dare I say – the single biggest reform across the spectrum – enacted since 1991 at least, and perhaps since Independence, is now a reality. But wait – is it really a reality? What has happened to justify the euphoria that I can see in tweets and media? Is there any reason for celebration, or is there just more reason to introspect, contemplate and look forward with increased hope towards the future?


First, nothing has changed as on 4th August 08:52AM; absolutely nothing; not for us, not for business, not for trade, and not for daily life. Forget the big debate of last evening and night – and move on; get to your office / classroom and try and perform exactly as you have been doing for the past umpty-ump years. There is a lot more than meets the eye, and a lot more that needs to be done; a lot that needs to be understood. Let us forget the promises and the game-changers stuff. There is a long process to go; let it come to fruition!


A CELEBRATION
Yes – there is reason to celebrate; and for more reasons than one. For the first time in my experience at least, I was treated to a calm, balanced and fair & frank debate in Parliament; used as I am to ugly scenes, such a calm and reasoned debate - with both sides trading not punches & barbs, but rather point and counterpoint, giving an inch or more where due, and moving the process forward  - was a pleasure and a genuine treat to watch. This entire episode, quite apart from the benefits in economic terms , represents a true victory for our democracy, in the way the many hues and sides of the argument debated and made it possible; full marks today to all who made this possible!


In economic terms – the GST, when implemented, will, depending upon the final structure that sees roll-out, be a massive booster whose impact just cannot be stated in simple and straightforward terms. It will impact, in my assessment, almost every aspect of business, as anyone who has handled inter-state business can readily testify to. Reams have been written on the precise economic impact, let me not waste space on that aspect; please google for details.


EUPHORIA AND CHALLENGES
The point I would like to make here in bold italics is that everything, literally everything, depends on the final draft that sees the light of day; what are precise rules, the exact  rates, the exemptions, what is in and what isn’t; impact on competitiveness and the rest of it will only be clear once the final version is in and all is known. Till then – we can remain hopeful for a great positive impetus on business, and little else in specific terms. Only one thing is certain – ease of doing business across state boundaries will have a sea-change, alongwith all its attendant benefits in terms of cost, market access, logistical and supply chain management impact etc


For the rest – we have to wait for the full details to come in, then and only then can a firm picture emerge. To quote an example, the handset trade is worried about the incentives offered to local manufacturers on making phones locally; as we saw in my budget analysis of last year, an attempt to address the inverted duty structure in prevalence was started by the Hon. Finance Minister; such changes were a sea-change, making local manufacturing cheaper to importing. What happens to such benefits, spread across states, SEZs etc is a matter of conjecture for us laymen; only time will tell.


Let us be crystal clear – even without the benefits that might accrue as alluded to above – this is a game-changer; just the operational efficiencies and cost benefits that arise from doing business in the changed reality of one unhindered market are simply too massive, too important and too large to be dismissed or ignored. Logistics and Supply chain benefits alone will justify it, almost; the ease of managing inventory and shipping to various locations, and not having to bother about state boundaries is bound to lead to massive cost savings over the long term. Add to that the lower administrative tasks – lesser and less cumbersome reports to file, less approvals, time saving etc : it all adds up to massive benefits.


Curiously, just the benefits listed above – which few Media articles have dwelled on, strangely – list the challenges as well. Who to file the reports to? In what format? Who to take approvals from? Who is the nodal authority for implementation, redressal and complaints? What is the rate – and how will the new rate impact the business competitiveness and pricing, given that it involves a financial implication in a world where margins are wafer-thin? If we add the other benefits, a whole list of to-do articles emerges, and clarification points become evident.


A common market will also require a strong and well-connected nation in terms of Information Network, common forms, formats and protocols across states, departments essentially speaking the same economic and tax language; it will also require a completely re-trained taxation staff across the nation -   with new procedures to be learnt and the old to be unlearnt. We are talking about an entirely new way of taxation; while it is welcome – let us not be euphoric. Euphoria has a tendency to lower our guards and allows mistakes to creep in; while hope ensures we are focused. At this juncture, India does not need Euphoria – it needs hope and hard, back-breaking hard work.



A lot has been said about how GST will  do away with Tax evasion – I can’t quite see how. Sure, to some extent it will increase the taxation base, make evasion difficult given the advent of technology as well as the streamlined and bottom-to-top connectivity in the taxation regime, but I somehow don’t see it having a stunning and large impact on corruption. Maybe, over time, it will slowly weed out the corrupt practices – but that remains to be seen. I am not fully convinced on the corruption aspect; you can put that down to my ignorance if you disagree with me. And if you have firm ideas on how it will lessen corruption, do drop a comment… 



REFERENCES  :

5 comments:

  1. That is an elaborate take on the trending GST ..I understand that there is a deadline for this to be implemented which is April 1st 2017. Hope it does not go through further rigours and bring succor to the heavily and highly burdened tax payers!

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    1. Yes, the deadline is 1st April; let us see how it pans out. Let us hope for the best!

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