Demonetisation and GST are the two earth-shaking economic events unleashed by the Modi government.
While the jury is still out on the success of demonetisation (though those in the know concede that never again would sinister transactions be consummated in cash on a scale done prior to demonetisation), the beginning of the end of the cash economy has been set in motion. And that in itself is no mean achievement.
But what about GST, which has followed hot on the heels of demonetisation? Well, its impact on India can be encapsulated in the following 10 points:
1. It can hasten the demise of the cash economy, the process started by demonetisation because those insisting on shady side deals dangling the carrot of transaction untrammelled or untouched by taxation would be left by the wayside.
They have to willy-nilly join the mainstream because others in the supply chain will ostracise the deviants otherwise. A chain is only as strong as its weakest link, so goes the cliché. Now under the GST regime, a deviant coming in the middle of a supply chain can deny input credit for those succeeding him. Better to boycott him.
2. Income tax collections would go up significantly as the voluminous data produced by the GSTN would give the income tax sleuths a wealth of information about those borne on GST registers, but not on income tax registers.
Various commodities and services might go up or down depending upon the GST rates.
The government has already gone for the jugular by mandating TCS or tax collection at source of 1 per cent from suppliers supplying to government and government departments, though it has been put on hold for the nonce.
3. India’s GDP would, in the wake of GST, be more fully and comprehensively captured in that the hitherto unorganised segment would be mainstreamed. The upshot would be that the per capita income too would go up significantly, thus earning Indians greater respect from outsiders and multilateral financial and trade forums.
4. Telecom companies will have to ramp up their data carrying capacities as uploading of invoices into the GSTN portal is mandatory under the scheme of GST.
In other words, the supply chain culminating in sale to consumer would be unobtrusively, but hawkishly monitored by the GSTN portal. Traders across the country would now be the highest consumers of data. Telcos have to rise to the challenge which is also an enormous opportunity.
5. In the short- and medium-run, traders and manufacturers located away from internet sweet spots would be at a severe disadvantage. A Mumbai trader might steal a march over his Varanasi counterpart simply on the strength of his superior internet infrastructure. This is first going to rankle traders located at such locations, but later their uprising could assume riotous proportions. The government should be prepared to deal with this threat.
6. IT solutions firms too must be salivating at the huge opportunity thrown up which by no means is going to be one-time. It is not only the GSTN that is going to continuously need IT solutions, but also manufacturers and traders across the country. IT professionals are going to be gainfully employed as are the accountants. POTUS Trump might have shut his doors on Indian techies, but they can come back home and grab the GST opportunity with two eager hands.
7. State governments can no longer indulge in one-upmanship because GST means one nation, one tax. Locational considerations after July 1 will cease to be on the basis of tax holiday offered by state governments.
8. Anomalies such as aviation sector having to bear and grin will have to go under relentless pressure that is bound to be applied. For airlines, the biggest input cost is aviation fuel, but the excise and sales tax would not be allowed as set off from its service tax bill because petroleum products have been kept out of GST.
9. Anti-profiteering authority can be counted upon to instil enormous fears in the minds of manufacturers and traders. It is wrong to assume that GST would bring down prices all-round. And it is equally wrong to assume that cost, including tax plus pricing, is the norm across industries.
Indeed, the anti-profiteering authority can run amok even with its phased and graded threats starting with directives to lower prices. Mercifully, its reign of terror would last only for two years.
10. Last but not the least, various commodities and services might go up or down depending upon the GST rates. Enough has been written on this and readers must be spared of the tedium of repetition.