India is all set to migrate to the much-vaunted one-nation-one-tax regime from midnight today — a historic event, indeed. The exercise is touted to be the biggest thing to happen to India since Independence.
The ambitious Goods and Services Tax (GST) will allow goods to travel freely across state borders. People will cease having to deal with multiple taxes under so many authorities and fight cases under so many tribunals. But will the new tax regime really simplify life?
Reforms are expected to ease life, while GST is quite ostensibly doing the opposite.
The paradigm shift has created fear psychosis in people across classes and pursuits. Anxieties are building. Everybody seems to be wondering as to what differences the new tax system will make to his day-to-day life. Post GST, will the life of a common man be easier or more cumbersome? A known devil is always better than an unknown angel.
The new system, despite its myriad of promised benefits, continues to flummox one and all. Many assume the changeover will bring chaos in the short term. This is rightly so. Small businesses are struggling to understand various ramifications of the new tax system as the compliance burden for them is set to significantly scale up.
The biggest challenge for them is to automate their systems and install at least one computer to upload invoices. The biggest chunk of people who will be hit by the GST are small-time traders and grocers who still cannot figure out how to run their shops and work around installing computers for GST compliance.
These people never had a need to install computers in their shops. They have no intention to migrate to digital processes. The new tax system will force them to hire IT hands or, at the least, data entry operators to upload hundreds of invoices three times a month.
The whole system is labyrinthine. Even after subsuming a few state taxes and central levies, the GST still maintains three layers: CGST-IGST, SGST and six slabs of taxation (0 per cent, 3 per cent (gold), 5 per cent, 12 per cent, 18 per cent and 28 per cent) while keeping taxes on electricity and real estate out of its ambit.
This has made the new tax system more complex than the existing indirect tax set-up. Further, as the taxes need to be paid three times a month, paperwork will go up many times and eat into the operational spaces of businesses.
Moreover, the system of taxing variants of a single product under various tax rates is bizarre. Footwear costing below Rs500 will be taxed at 5 per cent while the rest would be in the 18 per cent bracket once the new regime is rolled out. Similarly, cotton, yarn and ready-made garments under Rs1,000 will be taxed at 5 per cent for yarn and cotton, while garments above Rs1,000 will attract 12 per cent GST.
Analysts say the bigger problem will be encountered in tier 2 and tier 3 cities where connectivity and the use of computers are considered a big challenge. According to a report, at least 60 per cent of the four crore businesses that will come under the GST umbrella do not have a computer.
Most are not even clear about the rules of the new tax either. Even some of the large business houses do not seem to be ready to switch to GST and have expressed doubts over seamless integration. Considering the size of its economy and the number of stakeholders involved, India should not have hurried to implement GST. It may be a recipe for short-term chaos only.
