New All-State GST Could Improve Efficiency of Indian Economy

Certified Public Accountant (CPA) Joe Issa, who famously took all four parts of the CPA examination in one sitting, has commented on the Indian government’s new indirect tax regime known as the Goods and Services Tax (GST).

Issa does so in an interview, against the background of several thousand demonstrators " who are said to be mostly small and uneducated business people operating in the informal sector " taking to the streets of the Indian capital New Delhi to protest the GST.

“I read about the new indirect tax but not in any great detail. But from what I understand, I think it’s a good idea to bring the entire country under one tax law and do away with their different federal and state taxes.

“What it means is all states will be subject to paying the same tax rate on the same goods and services thereby removing trading barriers between the states, as capital including money and human expertise tend to flow where taxes are lowest. So I think this is good for the country as a whole and will improve economic efficiency in the long run.

“Indirect taxation is perhaps the most efficient and effective way of taxing goods and services by making it easier to collect the tax and to widen the tax net. 

“However, I see many challenges for businesses as they will have to submit their tax returns monthly and online, which could be even more challenging for small operators and those outside the formal system.

“Also, given the many aspects of the new tax " like different tax rates for different categories of goods and the many exemptions that must be known " it could pose problems if you are illiterate or not organised. 

 “I guess a lot of information will need to be disseminated to educate people and businesses about the schedules of the new tax regime, which can run into hundreds of pages.

“I was pleased that education in pre-schools and schools continues to remain tax free, although education in colleges and universities will become more expensive, as the goods and services which they offer will be taxed at a higher rate than before,” said Issa, who is supposed to continue to give back to the education of underprivileged Jamaican children, through his Cool Charities subsidiary of the Cool Group.

According to an article by NDTV, even as traders, small businesspeople, manufacturers and suppliers study the various taxes, Prime Minister Narendra Modi's government says by replacing several federal and state taxes, the new GST will make life simpler for business.

“By tearing down barriers between India's 29 states, the GST should deliver efficiency gains to larger businesses,” he was quoted as saying.

HSBC estimates the reform could add 0.4 percent to economic growth. “Yet at the local chapter of the Indian Industries Association, which groups 6,500 smaller enterprises nationwide, the talk is about how to cope in the aftermath of the GST rollout, NDTV reported.

It quoted chairman, Ashok Malhotra, who runs one firm that manufactures voltage stabilisers and a second that makes timing equipment for boxing contests as saying, “In the initial months, there may be utter confusion.” 

“A big concern is the Indian GST's sheer complexity " with rates of 5, 12, 18 and 28 percent, and myriad exceptions, it contrasts with simpler, flatter and broader sales taxes in other countries,” it wrote, noting that the official schedule of GST rates runs to 213 pages and has undergone repeated last-minute changes.

 

Anurag Agarwal, the local IIA secretary, questioned: “Rubber goods are taxed at 12 percent; sporting goods at 18 percent. I make rubber sporting goods - so what tax am I supposed to pay?”

Atul Joshi, founder and CEO of Oyster Capital, says “the implementation of the new indirect tax regime will bring challenges for the unorganised sector.” On the contrary, chartered accountants and consultants are expected to see higher demand going forward, NDTV wrote.