India has yet to get over GST pains

System migration clubbed with GST technical glitches have affected cash flows of and small businesses

A man climbs an an oil tanker parked outside a fuel depot in Mumbai, India, October 6, 2017. REUTERS/ Danish Siddiqui
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Suresh Srinivasan, the senior associate professor of strategy at the Great Lakes Institute of Management in Chennai, talks to The National about introduction and implementation of goods and services tax (GST) in India.

Could you explain the introduction of GST?

When it came to the question of enacting GST, governments, both past and present, did not have a choice. GST had to be implemented and country’s complex indirect tax structure had to be simplified - no question. The issue boiled down to which government would take the risk of implementing GST, especially given the quantum of change management involved and the potential backlash in the short term.

How does this compare to other countries?

Most of the European countries implemented a unified value-added tax regime at least forty years ago . Many countries in the Asia Pacific including Australia, Singapore and Malaysia have  introduced similar unified tax structure quite a while ago. Many African countries like Congo and Gambia have recently followed suit. From India's perspective, at least, we have the GST up and running now.


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What are the challenges of implementing such a regime?

Short term pain points and disruptions post GST implementation have been ubiquitous, in many countries. Over the last three months, GST implementation in India has created wide spread pain points - multinational companies to small and medium-sized traders continue to suffer.

What are some of the effects on businesses?

The huge system migration clubbed with GST technical glitches, be it filing tax return and securing timely refund of duties or crashing of the tax portal, have been the order of the day. Some of these have resulted in blockage of cash flows and small businesses are facing the heat.

What are the other concerns?

The other major pain point is the GST rate slabs [brackets] and classification of items in these slabs. The common complaint has been that many of the items used by the masses are classified in slabs that attract high duties. Items such as cement and paints are now attracting the highest slab of the tax rate.

In the longer run, what impact will the regime have?

Although in the short run, GST implementation could fuel inflation, over the long term, benefits in terms of strong government finances cannot be disputed. Expanding the tax net resulting in enhanced tax revenue, ease in tax collections and reducing the administrative costs are some of the clear long term benefits. Movement of goods across the country would become much quicker and cheaper through smoother logistics. All of these are expected to result in ease of doing business in the country. It is expected that once the GST implementation glitches settle down, GST can have a 1  to 2 per cent impact on the country’s gross domestic product.