GST: Some compliance problems for SMEs, but only the second country to have GST of this nature: Bibek Debroy–02.12.2017

In talks for several years, companies probably did not expect GST to come into force from July, 2017, which meant many were not prepared for it and this has caused much pain to trade and industry feels Economist and Chairman of the Prime Minister’s Economic Advisory Council, Bibek Debroy.

GST has been a difficult transition for many taxpayers, especially micro, small and medium enterprises with complex compliance norms and technology challenges. There are early signs that business is now moving from smaller firms to bigger, more organized businesses.

Debroy argues, “I would not use the word evidence unless you qualify it by saying anecdotal, because we do not have robust information yet. I am prepared to accept the argument, but let us try and understand what that entails. We all know that GST does not cover everything. It only covers up to a certain threshold. However, it could be that it is difficult for me to meet the terms of certain compliances that GST entails. When I say compliance, it may be the case that I don’t have to pay taxes, but I do have to comply, in which case I need to have a GSTN number. In recognition of this compliance problem, the GST council has been tweaking and there will be further tweaks” says Debroy.

The economist goes on to add that generally, trade, industry and commerce, “Probably did not expect GST to on the day it did, because it was talked about for several years and it did not happen. So, they ought to have been prepared but, they were not,” says Debroy.

Debroy, however, adds that bitterness toward GST stems from another reason. “Although it tends to provoke people, in some of these domains, there have actually been tax evasions and there is resentment now because that tax evasion will no longer be possible,” says Debroy.

While tax evasion needs to be checked, most MSMEs in the country did not have black wealth to begin with. While demonetisation dealt a heavy blow to the sector, GST has added to that pain.

Debroy’s new book titled ‘On the Trail of the Black: Tracking Corruption”, co-edited with NITI Aayog member Kishore Desai and published by Rupa publications, is an anthology of essays that discusses myriad sectors of the Indian economy – real estate, education, electoral finance, agriculture, et al – and explores what could push them towards growth.

Both authors agree that corruption exists in all possible sectors in the country. In fact, in the book, Debroy provides an interesting method to trace corruption: Corruption = Monopoly+Discretion-(Accountability+Integrity+Transparency).

Desai adds, “Demonetisation gave a very strong message about fighting this historical menace of corruption and black money. Through this step the Prime Minister clearly gave a message that he wants to take decisive action against this issue once and for all.”

The trigger
Debroy believes issues faced by companies around demonetization and GST should encourage them to be a part of the formal system, which he says is also more efficient. He explains, “Look at retail for example. Unorganised retail is not as efficient as organised retail. Unorganised cab drivers too are inefficient when compared to a fleet. Whether it is cabs or buses does not really matter. The Indian economy needs to be more organised. It has begun to happen, partly through government attempts, but government attempts can only provide triggers. Look at labour laws, for example. The unorganised sector is littered with examples where even the minimum statutory rights of labour are flouted”

At the same time, he also suggests examples to tackle corruption and ensure smooth businesses. For instance, in order to prevent corruption in one of the most corrupted fields in the country, real estate, Debroy insists on digitising land records.

Desai adds, “That is one project that has been going on in various states for some time and I feel that once that is done there will be a lot of transparency in the way. Currently what happens is that we do not have sufficient information about the exact ownership of the land.”

Debroy believes that most importantly the general public will have to develop a conscience and learn to be firmly resolute against corruption. Placing blame on the government at the drop of a hat won’t help matters. Both demonetisation and GST have been complex policy initiatives where the execution has been found wanting and in hindsight things could have been done differently,

Debroy, however, adds, “India is only the second country which has attempted a GST of this nature. When you see the figures of 144 countries, they have done VAT, they have not done GST. Amongst the seven or eight countries which have done GST, except Canada and India, all the others are unitary GST. It has been completely done by the federal government. Here we have to have a dual GST. So sitting in this position of uncertainty, I take some decisions and sitting in the same position, you might take a few different ones. In hindsight you always realise you could have taken better decisions whether it is I sitting in this chair or you sitting in this chair.”

via GST: Some compliance problems for SMEs, but only the second country to have GST of this nature: Bibek Debroy

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