GST is the Next “Pill”

All set to roll-out in 2017, the GST will be the largest consolidator after the demonetization policy.

Just winding up the climax of the demonetization drive, meant to clean the system from age old viruses like corruption and inconsistency, the Indian government is bracing up for another adventurous experience, through the introduction of The Goods and Service Tax (GST). The demonetization reform is yet to spill out it’s after effects, but the government has spearheaded for introducing the GST by April (or September) 2017, as a full-fledged tax legislation in enforcement. To an economy bruised by demonetization, the GST may either be an extended period of remorse, or a God-sent saviour. The central and state governments are still to reach consensus on the inter-state GST terms, the judicial preference in disputed cases, and the dual assessment of tax payers under central and state governments. There are new issues and conflicts that have propelled after demonetization attracted empathized attention.

The intent of GST is to bring all states and businesses under a single forum of communication and development, such that ‘business and tax transparency’ would be commonplace. Combining all states under a single tax legislation replacing the age old indirect tax system, is orchestrated by the GST constitution.

GST implementation would have a direct impact on the profit margins of all goods and service providers. The manufacturing industry in general is supposed to reap in good benefits from GST, with reduction of the cascading effects of taxes on post manufacturing stage right through the value chain, uniformity in inter-state GST taxes, and addressing the value chain tax aspect. In addition, there shall be more coherence between trading states to reap tax benefits. Likewise, with a uniform tax structure, states would look for more competitive arrangements to accommodate manufacturing. However, the 1 percent origin tax on manufacturers could be a hindrance on overall costs. There will have to be a curtailment of state exemptions given to manufacturers once GST becomes applicable, leading to manufacturers shifting their criteria loyalty to location advantages and being closer to key clients and customers. In essence, there would be a net-positive impact of GST seen on the manufacturing sector.

The central government must bypass the demonetization impacts that the states demand by driving their attention to the features and benefits of the GST legislation. Dual taxation and judicial preference are major issues under discussion, which shall take months to reach a collective agreement. The software and connectivity infrastructure required for becoming GST compliant is another hurdle, which will be sorted after the legislation is fully enforced. These issues provoke immediate and hurried action, but the government must be cordial in its intellectual influence on the legislation and offer motherly treatment to all states for the initial years until they learn to balance themselves.

There will be loud hiccups in GST implementation, errors shall originate, and resistance would be inevitable, but GST’s intent must be clearly expressed to all stakeholders and concerns must be addressed. Assessing the current pace of negotiations and acceptance, GST could be poised to become an enforceable legislation by September 2017. It is a leap of faith that may look timid in its promise; but eventually it shall deliver grand rationality between the government and business community.

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