The government should not seek to reduce the number of tax slabs under the Goods and Services Tax (GST) from four to two, said Adi Godrej, Chairman of the Godrej Group on Friday, 29 June. “Having four to five tax rates (for different commodities) is no major problem,” he added.
A year of GST implementation may have been marred by compliance issues and rate changes for goods, but the nationwide tax implementation has been an extremely successful move according to Godrej, who has for long been an advocate for a single nationwide tax.
“We can always tweak the GST for improvement, but (post GST implementation) the GDP has grown, consumer prices have reduced and tax collections have gone up,” Godrej said in an interview to BloombergQuint.
The India version of GST, a dual (Central and state) tax with at least four rate slabs ( (5, 12, 18, 28 percent), is more complex than what it is elsewhere in the world. Yet, Godrej believes, the benefits for businesses like his are already visible.
Although soaps is one of the few items in India which every household uses...consumption has gone up because of the lower prices. It has led to better growth for our company and I expect that will continue. Our logistics cost has come down. I expect the GDP growth in the year 2018-19 will further increase and India will be on a strong path.Adi Godrej, Chairman, Godrej Group
For a more effective implementation of the nationwide tax, Godrej recommends the government transfer all goods, barring high-end luxury products and ‘sin’ goods, from the 28 percent tax category to the 18 percent tax slab for consumer benefit. He also recommends the inclusion of petroleum products under GST.
Here are edited excerpts of the conversation:
It’s been one year since GST was implemented, how would you characterise it?
GST has been extremely successful as we had expected. GDP growth has risen. During the January-March quarter, the GDP growth was 7.7 percent which is highest in some time and that trend continues. I expect GST to continue to be very successful in India, the government has handled it well too. The GST council meets often and tries to solve any issues that come up. I feel this will be a great development for the Indian economy and the future of India, to my mind, is good.
On what basis are you correlating GDP growth with the implementation of GST?
It is because the GST has simplified a lot of things. Earlier, we had three different indirect taxes – excise duty by the central government, VAT by state government and octroi by city government which was very inefficient. Logistics cost were high, taxation was very high; since then we have reduced tax rates. Consumers have benefitted. These low tax rates have been passed on to consumers. And despite that, overall tax collections have increased. So, overall the economy has benefitted.
Do you believe that we have been able to achieve the full potential of this new tax system? For instance, there are over one crore registrations, but only 60-70 percent file taxes. For many goods, such as appliances, tax rates are higher than they were pre-GST, though for some rates have been reduced. How much more do we need to do to get the full benefits of GST?
We can always tweak the GST for further improvement. Some of the goods need to be moved from the 28 percent tax category to the 18 percent category. But, overall, it has been a great success. We have seen the GDP grow, consumer prices have come down and tax collections have gone up.
There were three key benefits expected from GST – elimination of double taxation, supply chain efficiencies and formalisation of the economy. From the Godrej group’s point of view, what has the benefit been, in terms of numbers. Has GST helped unlock value in your business process?
Yes, definitely. From the very beginning, since July 1, the tax rate on soaps, which is our major category, has been brought down. We passed the benefit onto the consumers. Although soaps is one of the few items in India that every household uses...consumption has gone up because of the lower prices. It has led to better growth for our company and I expect that will continue. Our logistics cost has come down. I expect the GDP growth in the year 2018-19 will further increase and India will be on a strong path.
What part of the increase in soap sales would you attribute to lower prices? Have you been able to unlock value via supply chain efficiencies and add to your margin performance because of GST specifically?
There definitely have been benefits on all the counts you mentioned. But it is very difficult to pinpoint the exact quantitative benefit. You can get an idea in our quarterly results. I expect this will further continue. The GST Council is going to study how to make things more efficient. They will study how to move products from the 28 percent rate category to 18 percent rate category. As they progress in that direction, there will be tremendous benefits.
After one year, how many smaller businesses have been able to adapt to this new tax?
Most of them have been able to adapt. The ones who found difficulty are the ones who used to evade taxes earlier. It has nothing to do with larger and smaller businesses. Lot of businesses were used to evading taxes in the old regime, which is difficult to do now. So, they will come in line. We deal with a lot of small suppliers, vendors, wholesalers, distributors and most of them have been able to manage very well.
Some people have correlated that to higher imports in the economy to this. How would you assess the net effect on the economy of this formalisation move and the interim troubles created at various ends of the supply chain?
Certainly, some people were affected by various reasons which will continue. I won’t say that everyone will be in extremely fine fettle. Overall, the economy is in much better shape, GDP growth is much higher, and we hope to accelerate GDP growth further.
What is it that you expect the GST Council to do in the months to come to make this a more efficient tax?
Except high-end luxury goods and sin goods, they should take all the products out of the 28 percent category and put them in the 18 percent category. To my mind, that will benefit consumers tremendously and in a very short time, will lead to increase in revenues too. That’s the move that could be made. 28 percent is too high a rate except for luxury and sin goods.
Do you envisage moving from a four-slab GST structure to a two-slab structure anytime soon?
No. I don’t think we should move from a four-slab structure to a two-slab structure because, in India, high tax rates on simple food items could be disastrous. So, I don’t think we should. Having four to five tax rates is no major problem.
What about fuel and such that were left out of the GST?
I think petroleum products should be brought under the purview of GST.
The central concept of GST was the invoice-matching mechanism which has not yet been implemented. If it were, what impact do you expect it could have hereon?
Everything is on the computer. All the checking and matching can be done; I am sure the government is trying to do it. It is not something that you should do on a 100 percent basis. It is uneconomic. It should be on a sampling basis.
Are you suggesting that we should not move to full invoice matching process ever in GST in this country?
I am not an expert on this topic, so I wouldn’t like to comment.
(This article was originally published on BloombergQuint)
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