Would GST be able to infuse life in ailing economy?
Is GST only Hype and Hoopla or would it be able to give some boost of the economy? Would it be grindstone in neck of businessmen or would it be benefitting the businesses houses?
Would it be able to make “One Nation One Price” practical or be mired in controversies and needless litigation?
Don’t expect all rosy from Day one- GST is also one of the reform. Many countries where this form of taxation has been implemented took years to evolve this into a mature law. No doubt, India would be benefitting from the experience of other countries, but still some hiccups cannot be ruled out.
Some of the benefits that seem to flow from GST are-
GST to improve ease of doing business-
1. GST to curb bureaucracy and eliminate needless paperwork;
2. It will bring uniformity and predictably- well this is what is being touted. But would it? There are many questions and queries being raised on some of the processes, unless the same are resolved, it may not
3. This will make India an attractive investment destination and may promote Make-in-India program. Yes, if the reforms actually translate into what is being promised, it will, bt it may be too early to expect so
Some Hiccups expected in smooth GST roll out
Some hiccups that may impeded the delivery of promises as being envisaged-
Long Border delays– As the goods move across multiple states and have to go through border checking at these states, checking of papers, stamping, upto 24 hours long queues, it may not be able to bring down the transportation costs; clogging of the highways and thus finally consumer price of the goods.
Cost of Compliance with GST- If GST actually becomes effective in making tax rate uniform across country, it surely will help the economy. One would plan to set up industry where the crucial inputs are and not where the taxes are low. Pharma industry will no longer have to leave the parent states and rush to hill states to save taxes.
Need to maintain warehouses in multiple states just to sell through form F and save taxes will vanish and so will vanish the needless costs to maintain warehouses thus bringing down costs of operations
Businesses would now be able to freely transfer their inventories among their various branches without forfeiture of a part of the input tax credit. This will help in efficient inventory management to prevent simultaneous over-stocking and under-stocking at different branches.
However Since GST Draft bill has not clarified the taxation of stock transfers, actual benefit on this account remains to be seen
State Politics may shroud the benefits- With GST Council, state has 67% of the voting power and centre has 33% and to take a decision at least 75% of the votes are required. Thus both state and centre have to come to common understanding before passing the motion. However different political interests in State and Centre due to different ruling political parties may make decision taking an arduous task.
Radical change in taxation structure- At present the manufacturing is taxed at higher rate than services. With GST, both would get taxed at same rates thus making services more costly. However reduction in effective tax rate on manufacturing may encourage manufacturing sector