GST is a basically a Single tax that subsumes various indirect tax levies such as Excise duty, Service Tax, Sales Tax (VAT/ CST) etc and instead with GST only a single tax is payable. However in the present form and the way it has been pushed in, it has more disadvantages than advantages it is expected to bring in.
is GST the solution to all tax evasion as Media wants us to believe?
Advantages of GST
- GST is being marketed as historic reform and no doubt the way GST is structured, it is indeed sure to make the things transparent and make tax evasion difficult
- Instead of number of assessing authorities, an assesse would have to face one assessing authority. Often for the same issue, on assesse had to face Sales Tax Department, Excise department- this would be resolved
- GST is backed by the GSTN, which is a fully integrated tax platform to deal with all aspects of GST.
I cannot think of any other advantage GST is expected to bring.
Disadvantages GST is Likely to Bring along
It is much hyped amendment and backed by aggressive marketing strategy. How many people who burst fire crackers actually understand GST? Does that mean they were hired workers as we hear the hiring during election meetings?
No Doubt it is a good step but I am afraid because of following reasons, it may cause sharp inflation at least for a year, something that middle class in India can least afford
These factors are-
- Increase in effective rate of taxes- leading to inflation at least for one year. Thereafter we will get used to it. Effective rate of Taxes is going up in GST- This increase in effective rate of taxes is bound to push up prices and hence inflation. It has been universally agreed dictum among various economists that the benefit of increased tax compliance must largely flow to common man by way of reduction in taxes to encourage further compliance. High rate of taxes force people to discover innovative ways to evade taxes. While GST with its IT infrastructure will force higher compliance, instead of reducing the rates, tax rates are being jacked up
- There are huge penalties for even small non compliances This will further subject small and medium traders to heavy penalties, increasing their cost of compliances, and this jacking up prices
- Reduction in Consumption- leading to Job Losses– I personally do not agree to argument that GST will lead to increase in consumption. In Simple terms consumption is directly linked to earnings and purchasing power of people. As discussed above, once the prices are increasing due to increase in rates of taxes, how can consumption increase? Once consumption goes downhill, job losses are bound to follow leading to further reduction in consumption
- Tackling Tax Evasion- Tax evasion happens by two means-
- Showing inflated prices not linking the cost of input with output – Yes, this would stop, agreed.
- by movement of material not backed by invoices– GST would not be able to stop this. The problem did not lie with earlier form of taxes but with the corrupt infrastructure. How would GST be able to stop this? Illegal movement of goods without invoices will continue unless the policing mechanism to check the movement of goods is tackled, it is a separate issue, GST has nothing to do with this
- Reduction in number of returns- Wrong publicity by Government. Number of assessing officers a trader has to face down and not number of returns. Instead of one monthly or generally quarterly sales tax return + one half yearly return, an assesse has to file 3 returns a month
- Cost of running business will be lower- FALLACY- Once the compliances are increasing., penalties are increasing, the consumption is expected to come down, how would cost of running business come down. Simple math- no rocket science needed here
- Ordinary small assesse is not equipped with technical skills or IT infrastructure- This is also bound to increase the cost of compliance. Here in most cities one is not sure of power, and hence the connectivity would remain a major issue. No Doubt GST is a wonderful too to tackle tax evasion and improves keeping track of sales and movement of goods, but simultaneous provision of IT infrastructure is must. Otherwise with no reason, traders would be subjected to penalties
- Draconian Provisions Some of the provisions are plain absurd and illogical. Assume that you have bought something from me and paid full GST while purchasing and would like to claim credit for the same in your tax returns. Now assume I do not pay taxes for reasons best known to me. You would have to pay such GST yourself. You may file civil case against me (if you can afford time and cost) or may blacklist me ( if that makes any difference to me) or plain have a regret. While a common man has no civil powers, Government has all infrastructure in place, and can coerce recovery from erring dealer, why Government is shying away to take this responsibility can best be explained by Government or the people praising GST
Some of the advantages as being touted that tax evasion will be difficult are not correct. Trust me that with such high rate of taxes, corruption would increase so will be tax evasion. Differ with this? Please consider, now after about 6 months of Demonetization, has corruption stopped or decreased?