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GST: The challenges before India's largest indirect tax reform
October, 01st 2019

Sanjay Panjabi’s family has been in the hosiery business for three generations. His attention is currently focused on tax and regulatory compliance. He just filed his annual income-tax returns due on August 31. Then came a slew of deadlines in quick succession—September 10 for filing Good and Services Tax (GST) returns, September 15 for filing advanced taxes and September 30 for audited results. “How much can small businessmen like us handle in a month?” Panjabi quips, adding that his working capital requirements have risen from 45 days to 60-65 days as a result of GST implementation.

The locality to the west of Mumbai’s Masjid Bunder railway station, where Panjabi’s wholesale business is stationed, is a classic example of a bustling cash-driven market transiting towards banking. Panjabi explains how almost every merchant in the area is struggling with higher working capital needs, because buyers, who are retailers from across the city, have started to insist paying through bank transfers, but then the payments are also delayed compared with cash settlements earlier.

In Surat, a textile city which fiercely protested against the introduction of the GST in July 2017, the cost of tax compliance for a small trader has risen by about Rs 50,000 a year, according to Champalal Bothra, secretary of the city’s federation of textile traders association, called FOSTTA. The city, located 280 km north of Mumbai, lost customers, looms and jobs during the last two years. Yet, it has now accepted that GST is here to stay. “Our demand now is a reduction of the GST rate on textiles to 1% (from 5%),” Bothra. says over phone.

Earlier, the city was demanding its total withdrawal. Textiles, like agriculture, were not taxed earlier, although there was an indirect tax on yarns.

Twenty seven months after India’s biggest and boldest tax reform hit the ground, the challenges have spread from the discontentment of small traders to more systemic issues— slow growth of GST collections, the emergence of nation-wide fake invoices racket and the failure to reach a consensus on rationalisation of rates and the inclusion of items such as petroleum products and electricity in the GST’s ambit.

Firstly, the tardy growth of the GST revenue collections has pushed the states and the Centre into a corner. In the month of August, the GST revenue collections stood at Rs 98,202 crore, a notch below the psychologically important one lakh crore mark. It was up by an unimpressive 4.5% compared to August 2018. Compared with this year’s high of Rs 113,865 crore collected in April, the revenue in August was down 13.7%. One has to however account for the fact that demand in August — a month before the festive shopping spree begins — has traditionally been sluggish. This year, due to the ongoing slowdown in consumer demand, the effect is amplified.

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