The much hyped “One Nation-One Tax” dream will be realised at midnight tomorrow, when GST will be rolled out officially from the central hall of parliament.
Some entrepreneurs have raised concerns that GST is going to impact them adversely. As of now a business with an annual turnover of up to Rs 1.5 crore is not required to pay excise duty, but this limit has been reduced to Rs 20 lakh under the GST regime.
The small and medium enterprises (SMEs) are the backbone of our economy, contributing roughly 50 percent of industrial output and 42 percent of export earnings.
Impact on SMEs and Service Sector
The fear is uncalled for because under the existing regime a unit which avails the exemption limit of Rs 1.5 crore (popularly known as SSI exemption) can’t include credit on inputs used in manufacturing the goods, and therefore, there will not be a significant impact even if the SMEs are required to pay taxes on goods manufactured.
The exemption limit for a service provider is limited to an annual turnover of Rs 10 lakh, now it has been raised to Rs 20 lakh. The share of service sector in our GDP has been increasing consistently and doubling the tax free exemption limit will bring relief to various service providers.
Unorganised Sector Will be Hit
The unorganised sector employs a large workforce and there are some genuine concerns with the implementation of GST. The GST’s provisions put an obligation on the purchaser to pay taxes and comply with regulations if he procures any goods/service from an unregistered vendor.
Compliance in these cases can be onerous since a person will not prefer buying from an unregistered vendor and therefore the unorganised sector may take a hit.
Also Read: 'Business Hit Due to Confusion': Is Old Delhi Prepared For GST?
E-Way Bill
Usually a service provider is required to file a single return for all the locations, but going forward he will have to file it separately for all the states in which he operates and that too on a monthly basis (as of now it is filed biannually).
Since lawmakers were aware of these challenges and therefore relief has been given for the first two months. Businesses will have to bear this burden and in view of the federal structure of taxation, the centre has limited scope.
The e-way bill has become another hot topic. Though the introduction of e-way bill is praiseworthy, its implementation is questionable. We can’t expect a truck or lorry driver to login into the GSTN portal and generate the e-way bill.
Also Read: GST-Ready or Not, Businesses Brace For India's Biggest Tax Reform
Are We Prepared for the GST?
The entire GST reform is dependent on its IT-backbone (which is GSTN) and the system is not yet ready for implementation. The GSTN server was unable to support when migration was reopened in June, and one can just pray that it doesn’t happen when taxpayers start uploading their returns.
The chairman of GSTN, in an interview, said that there is no time for testing the software and the system will be live without a beta run. He has rightly said that at least a couple of months are required to test and fix the bugs, but the rules have been notified recently and therefore it is not possible to go for test run.
We are in a situation where we are headed towards a blind tunnel and one hopes that underpreparedness will not create a chaotic situation like demonetisation.
The success of this biggest ever tax reform depends on its compliance/enforcement which is the responsibility of the government and for now the emphasis should be on smooth migration to the new regime.
(The writer is a Chartered Accountant and can be reached @shshanksaurav. This is a personal blog and the views expressed above are the author's own. The Quint neither endorses nor is responsible for the same.)
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