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Dont rush into a new tax without being prepared
December, 06th 2016

Given the virtually stalled progress on the goods and services tax (GST), it is increasingly unlikely that the government would be able to kick off the new tax by April 2016. The best bet would be to target September and work towards that goal in right earnest. The government had shown the good sense to keep the option open to initiate the new tax at a date later than the original target of April 1, with the finance minister having gone on record to say that April 1was a very tight deadline. Now that many state governments and their finance ministers are busy putting out the fires lit by demonetisation, they are unlikely to focus on the business of getting GST going.

Most countries that have adopted a value-added tax like the GST had given their economic entities at least 12 months, after notifying the rules, to gear themselves up for compliance. Indians are, of course, from a different planet and can do the same task in half the time. But they do need those six months to prepare their information technology systems and reorganise internal business processes to comply with the new tax regime. If a company has to get credit for the taxes it has paid while purchasing its inputs, it is not enough that it should get its documentation ready — the companies from which it had purchased its inputs must get its paperwork in order and must upload the documents to the GST Network, and the tax elements filed by the suppliers and the purchaser must match.

Otherwise, companies will have to wait for indefinite periods for a refund. The only way around is for companies to reorganise their sourcing, cut out all small vendors and buy only from large companies that are guaranteed to get their documentation right at the outset. This would majorly upset a large swathe of companies that lose custom to big competitors.

The way to avoid incurring their wrath is for the government to work hard to finalise the laws and then the rules to implement the laws. Companies must be given six months thereafter to be GST-ready. The alternative is chaos that would create a backlash against the tax.

 
 
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