Why GST is not for the consumers
Do not lose sleep over the nation's tryst with GST destiny. At least for consumers, the "transformational" GST is not going to be a big deal for the next two to three years. At the most, the dawn of July 1 will remind one of the Budget day when a host of services become dearer and a few products turn a tad cheaper.
In fact, the consumer narrative of the GST is just presumptive. The GST is a hardcore business process reform which will have a decisive bearing on millions of Indian businesses. A long and bumpy road still remains before the common man pockets the benefits of GST. However, the over-simplified and consumer-centric explanation of GST is handy to the government for scripting a rosy story out of a complicated reform.
Let's find out where the common consumers stand in the vast labyrinth of GST:
Millions of businesses are the first and foremost stakeholder of GST. This reform is essentially focused on them. Their first battle is to transit safely to GST and then sustain with its complications. Governments (the Centre and states) are the second big stakeholder of GST. Humble consumers can only wish well to businesses and governments on their compliance and revenue endeavors.
Interestingly, the consumer-narrative of GST hinges upon the most complicated and experimental process of input tax credit. With input tax credit, GST is supposed to tackle one of the major distortions of the current tax structure, that is, the cascading effect of taxes.
Post-GST implementation, manufacturers can claim tax refund on the inputs to the final product. They will pay tax only on the value (output) they added to the product and will be credited with the amount of tax they already paid on inputs.
This, of course, is a phenomenal reform. However, the benefits of this process will remain in the realm of presumption till GST sets in. The pro-consumer premise of GST is based on the supposition that GST will reduce the cost of business via tax refunds and benefit will eventually make goods and services cheaper.
However, this hypothesis of GST comes with three big ifs.
1. Neither the government nor the industry has any idea how much saving the input tax credit will generate for various producers and service providers.
2. The government is still grappling with the primary challenges of assesses migration and registration. The refund process is still a far cry.
3. Initially, the cost of GST compliance may offset substantial gains businesses may accrue via input tax credit.
4. Even if one assumes that GST will generate healthy savings to the businesses, the consumer will get the benefit only when the government reduces the rate of taxes. The government is unlikely to cut already high GST rates in the near term owing to the fact that transformation will be a revenue dampener.
Although the government has brought in anti-profiteering measures to ensure that manufacturers and dealers do not hoard unreasonable profits and pass on the tax benefits to the consumers, the process of anti-profiteering would not start by design. It will begin only with the receipt of an application along with evidence.
In other words, the poor consumers will have to take on the nearly impossible task of challenging and establishing the case of profiteering before the designated authority.Second, the process of hearing, investigation, and return of undue profit to the consumer is highly bureaucratic and cumbersome.
Ignoring these facts, if any enthusiastic consumer genuinely prefers to be a part of the GST history, he can try his luck with the government on the following points.
1. The government must come out with detailed sector-wise research on the benefits and savings likely to be generated through the refund of input taxes.
2. How does the government intend to ensure transparent reporting of GST benefits by the companies?
3. The government must share data on the compliance costs for various sizes of businesses.
4. How will the reduction in tax rates after GST factor in its benefits to the industry?
Nevertheless, good luck everyone!