GST is finally about to see the light of day. As an investor, please understand that GST does not give any sustainable edge to any one company over another. Any small savings that happens, will certainly get eroded gradually. You will, in the days and months to come, be reading about ‘GST winners, GST losers’ etc.
There could be marginal shifts in the burden of tariffs due to the changeover from the existing structure of taxes on goods and services to the GST regime. However, any gains or losses on this account will be nothing more than transitory. Competition will ensure that gains/losses are passed on to consumers. Thus, GST by itself is not going to impact the profitability of any company.
GST may bring two broad things- Immediate chaos because changeover problems. This could last for a year or more. And contrary to what should have been a single body administering GST, we have every State Government and the Central Government enthusiastically participating in this and making compliance extremely complex. Let us hope that corruption is reduced. What the government has NOT done so far, is to take away all ‘discretion’ away from the executive powers with administration. IF they do not do so, then corruption will not come down, but rather increase. Small businesses will have a tough time.
The governments (State and the center) will in all probabilities collect a higher revenue under the GST system, as evasion becomes difficult and people are unable to claim their full set offs.
The big blow that has been slipped in is the huge rise in Service tax rates from fourteen to eighteen percent. Probably, this will ensure that the tax collection of the government shows a sharp rise.
We still have the state governments acts on various products. Many cities will lose out on their Octroi collections. The good thing is that transport of goods would perhaps become cheaper as lower bribes will be paid. However, the bureaucracy seems to have armed itself with the onerous documentation requirements that are so complex, that any assesse will gladly pay a bribe to escape the unknown. The E-way bill will ensure that the time saved by Octroi is subsumed and no real benefit happens to businesses.
As it is, I can see the ‘undecided’ items like Gold & Jewelry falling in to a separate bucket. While logic says that they should be in the five percent or higher bucket, the trade lobby is so strong with the politicians that they will get away with a rate as low as one or two percent. Just think. I would have put these at 28%. These are wasted consumption and simply add to the balance of payments problems.
When GST was conceived, it was supposed to be a single point tax, with no role for the state governments. From my experience, I can tell you that business is not as much bothered by the rate of taxes as much by the corruption and harassment by the state governments. Thus, this GST has been a big letdown. GST is also supposed to be a single rate across products, except perhaps some sin products like liquor, tobacco and gambling. That would have been a great thing. However, with so many slabs, the politicians will each year keep shifting products from one band to the other, for some consideration or the other. So, my view is that corruption is going to be same or higher under GST as compared to the present system.
I also think that the 20 lakh rupee limit for applicability is going to be a gold mine for evasion. Why should any one be exempt from GST? If everyone can have an Aadhaar card, they will be connected enough to pay GST. There are enough stories of road side food stall owners being worth crores and crores and not paying any taxes. And if the consuming public are paying MRP for everything, why should anyone be exempt from GST?
Procedural compliances are going to be engaging everyone for the first couple of years. The government machinery has created another weapon of terror and harassment, with the number of forms to be filed at different intervals, with multiple authorities.
When the government came to power, they promised ‘ease of doing’ business. Unfortunately, it seems to be true only if you are a foreign portfolio investor. For Indian businessmen and service professionals, the processes will be a big negative.