GST impact: Just giving India Inc a filing breather isn't enough, Mr Jaitley

The government has given two months extension to companies to file their returns for July and August under the new Goods and Services Tax (GST) regime that comes into effect from 1 July.

The step has been welcomed by the industry, which was struggling to deal with the immense pressure that the new tax structure will bring and had sought extension in the deadline to comply with the tax fillings.

A disaster in the making

However, the problems of the industry as well as professionals go beyond the timeline of filing tax returns and unless the government keeps this in mind, the after effects could lead to chaos resulting in disaster for many a businesses in India.

In its original avatar, GST was meant to make things easy and transparent for the stakeholders, including the government.

But in its final form, passed by the legislature, it looks to only add to the compliance cost of the companies.

For example, look at the need for companies as well as distributors to pay GST at the time of dispatch of stock even if its being supplied to one's own warehouses. The company and distributors have to claim credit on the input tax paid. The input tax credit mechanism will be online and real time, requiring the services of professionals.

Most experts believe that this will kill a lot of SMEs as they would not be able to manage the high cost of GST compliance under their existing profit structures. While the big industries may rejoice this as it leads to less competition from unorganised players, the end result may be job loss for many.

Even for those who have the money to incur the GST's compliance costs, there would be problems aplenty.

According to an Economic Times report, “a business will have to file 37 returns in a year (three returns per month and one annual return) per state. If it does business from offices in more than one state, the number of returns will go up accordingly. A business with a offices in three states will have to file 111 tax returns in a year."

Duality of compliances

Another problem that the GST brings with it is that of multiple rates for different products. In the case of petrol pump owners, the problems lies in the fact that while petroleum products have been kept out of GST, many other items sold at the outlets- like lubricants and distilled water- are part of GST.

This will lead to duality of compliances as the owners of petrol pumps will have to file two returns - one for the GST exempt while the other for the non-GST exempt products.

If the government had brought petroleum products under the GST regime, this problem would not have arisen.

And last but not least, by having multiple rates for goods as well as different types of services, the government has chosen to be on the side of just 10% countries in the world that use GST.

A messy affair

According to the Expert Committee on the Revenue Neutral Rate for GST that gave its first report in December 2015, 90% of the countries which have adopted GST, have opted for a single rate structure, which allows for easier tax administration.

GST, as a concept worldwide has been used to make the business transactions easy, fast and transparent. The way the GST has been envisaged in India, it certainly scores high on the transparency factor, but on other two important parameters, it is found wanting.