GST: An Opinion (To add to many)

            In the 2014 general election, as in every election (but maybe more so because of the increasing popularity of social media), the Indian voters went into the election booths with hope in their hearts - hope for change. We all wish for India to be able to compete economically with countries like China, and hope for a time when India earns the coveted “Developed” tag. The dreams of a developed India may be fulfilled in the far future (the generation after ours or the one after that may see the reality), but the changes that have occurred over the last three years have definitely taken India ahead by leaps and bounds in the economic sector. As with any government, some of the changes since 2014 have been positive, while some have been negative. The question to ponder over is, while trying to move one step forward, have we really moved two steps back? There are enough opinions on the social media about this, and I’m not going to add my own to it. What I would like to address instead, is the most recent major change: GST.

Disclaimer: This article is just an expression of my opinions, and I am aware that I may actually contribute to the confusion around GST instead of helping to understand the concept as is my aim. I am open to comments and constructive criticism.

            GST being such a major change impacting the entire country, has caused a lot of speculation and controversy, as does any major reform nowadays. The social media being what it is, every little bit of news is hyped so out of proportion that by the end of it all, we don’t even know what the news really was. In an age where a simple issue of a break-up (or a broken heart) can become viral if it’s interesting enough (ahem…ahem…Sonam Gupta bewafa hai), it is really no shock that a humongous change like GST has caused the rumour mill to churn out some ridiculous rumours. The problem in this case, however, is that every rumour stems from some truth, and so, however ridiculous they may be, we tend to believe them. The description of GST which follows is just an articulation of my own attempt to separate fact from fiction, and my opinions on what I found.

So what is GST?

The full-form, Goods and Services Tax, gives no indication whatsoever of what the Tax means, or of the impact its implementation would have on the country. The succinct expansion of the acronym that is going around in social media, Good and Simple Tax, also doesn’t really cover it (and faces a lot of mockery, because there are people who believe that GST is neither good nor simple). Before GST, there was a multi-stage tax system in which at every stage of manufacture of a product, the parties involved have to pay several taxes (for more information about this, I recommend you visit https://cleartax.in/s/gst-law-goods-and-services-tax...It gives an elaborate description of the production procedure and how the taxes are distributed). This system was complicated enough within a state, but if you think about the difference in taxation across the states, it just boggles the mind!

Say a soap manufacturer in Maharashtra transports his soap to Kerala, among other states. After he sells the soap to dealers in Kerala, suppose he realises that there was a problem in the entire shipment, and he decides to recall it. This is when the confusion would start. The taxes to be paid and refunds to be claimed (if at all) in this situation would be baffling, because one must consider not only the two states in question, but also every state the soap would have to pass through to get back. This would still seem manageable if not for the paperwork involved, demanding so much time and effort that in such situations, companies find it better to waste the entire thing than to go through the tiresome process of bringing back the shipment.

GST aims to remove the complications completely (if not the paperwork, but that should also become easier) by unifying all these taxes into just one tax, applicable throughout India. So basically, this new tax regime (which is what GST really is) introduces only marginal changes the taxes of most products. The only drastic change is in the method of taxation. Also, though the tax levied on certain products and services will increase under the new tax regime, there are many more which will see a decrease in taxes!

Concerns of the Common Man (an example)

All the noise created about how air fares and train ticket costs are increasing are only half-truths. In fact, the implementation of GST, at least in the regard of travel, may actually be a boon to the common public (by that I mean the people who fly Economy Class or non-AC trains), because taxes have actually been reduced. Here are some figures:

Service	Before GST	After GST	Lower or Higher
Train (AC)	4.5%	5%	Higher
Train (Non AC)	0%	0%	No Change
Metro/Local Train	0%	0%	No Change
Flight (Economy Class)	5.6%	5%	Lower
Flight (Business Class)	8.4%	12%	Higher
Ola/Uber Services	6%	5%	Lower

 

If you look at the above table carefully, you will notice that the services used by India’s majority population, is actually not affected by a very large margin. The tax is only increasing in AC train and business class flight tickets. 0.5% is a tiny ripple of a change in tax. Take the longest train route in India, Kanyakumari (Tamil Nadu) to Dibrugarh (Assam). The 2^nd AC ticket for the journey costs ₹4031, 0.5% of which is about 20. Is having to pay an extra ₹20 over something that already costs ₹4031 really worth all the hue and cry about the train tickets? Because the other transport services used by common man are actually becoming cheaper or remaining unchanged! (For more information about the GST on various products and services, visit http://www.deccanchronicle.com/business/economy/010717/railways-to-movies-here-is-how-gst-will-change-services-from-today.html.)

GST: Good or Bad?

If we think short-term, GST may not be that good of a reform, because for now, it will cause inconvenience everywhere due to the long list of enforceable rules and regulations coming with it, including electronic records of inventory, purchase and sales transactions, and accounts related to it, as well as frequent checks to make sure the records tally with actual figures. This apparently increases the efforts of an unorganised and semi-professional establishment, and that, in turn, may result in the increase of the final amount the consumer would have to pay. The electronic records would not only reduce tax frauds, but also help to avoid wastage of money as discrepancies in raw materials or products can be checked easily. This is a lot of extra effort for industries and traders who do not already follow it, because keeping accurate records isn’t a walk in the park.

Such unprofessional organisations are unlikely to realise that the new, simplified tax regime benefits even them, even though the complications of the pre-GST system facilitated their tax evasion. What they haven’t yet grasped is that they might have been evading taxes, but the absence of proper records has many drawbacks. Consider, for example, inventory in a small-time shop. Since there is no track of inventory, they cannot judge which products are generating inventory losses. GST requires an electronic inventory record, which will help them judge the inventory loss of any product they sell, and hence contribute to profitability. That said, since they haven’t seen this benefit, they may think that they were evading tax before, and being forced to pay tax (no matter how much it has reduced or been simplified), would come across as a loss to them. Consumers should, therefore be wary of such sellers as they may randomly increase the prices of the products and/or services they provide, and blame GST for the increase, though the truth is different.

However, in the long run, I think GST is something that will really help India as a developing economy to gain more professionalism in doing business. GST eliminates the confusion resulting from the previous complicated tax system, and once the difficulties of revamping an entire country’s revenue system are sorted out, the simplicity of GST will improve the life of consumers, industries and traders alike (both professional and unprofessional, though they may not realise it yet), by reducing the long-term efforts needed. Of course, the new taxation system has its own drawbacks, like the fact that the state governments are increasing the taxes on the few things out of GST’s purview (read more about this on http://economictimes.indiatimes.com/news/economy/policy/state-levies-and-new-inspector-raj-may-spoil-gst-party/articleshow/59519429.cms ). Hopefully, in due course, this will be worked out in a way that is beneficial to India.

Some Ridiculous Rumours

To conclude, I would like to put the lid on a few of the most absurd rumours that have cropped up surrounding GST (I am in no way covering all the myths; I just chose the ones I found preposterous).

 

SR NO.	MYTH	REALITY
1	There is an extra GST on online transactions	The only GST here is the one already applied. There is no GST for the transaction itself.
2	You have to pay GST twice for card payments	There is no additional GST if you pay by credit or debit card other than what is originally levied.
3	GST will be charged for ATM withdrawals	There will be an additional fee on ATM withdrawals (different banks have different thresholds) after a certain monthly limit, but this has nothing to do with GST

 

I am grateful to the authors of the articles I have referred to above, for making the daunting concept of GST easier for me to understand. The following articles also helped me in my endeavour.  

http://economictimes.indiatimes.com/wealth/spend/gst-myths-busted-a-reality-check/articleshow/59501148.cms

http://www.gstindia.com/about/