Mindset which Cannot Accept Change Opposing GST Regime

GST

Kochi: I am very positive about GST in spite of the hassles we are facing because of its roll out. Rather than procrastinating for perfection, the decision to roll out GST and then fix the red flags on the way was a brave decision by the FM. With multiple political parties ruling at the Centre and states, had he waited to iron out all issues and generate 360-degree consensus, GST would never have happened.

In the 70s people were hesitant to enter a textile shop which was air conditioned. Even when computers came, there was resistance, says M K Parameswaran

Even when VAT was rolled out in 2005, we had many challenges and pain points. It was not that the Act was unclear; it was our understanding that was lacking. Now GST has been rolled out and everyone is interpreting the Act, but nobody has complete clarity.

Any new idea faces an acceptance hurdle. In my view, Indians by nature resist change. In the 70s people were hesitant to enter a textile shop which was air conditioned thinking it will be pricey. Today you cannot imagine a shop without AC. Even when computers came in for the first time, there was resistance. The real problem is the mindset which cannot accept change.

Some of the major concerns raised:

  • Mismatch of Input Tax Credit: Under the GST regime traders are required to match the Purchases to claim Input Tax Credit. This may lead to problems in availing the same if the counter party doesn’t correctly upload their returns or remit taxes (This issue existed in the VAT regime also).
  • Loss of Input Tax Credit: Input Tax Credit cannot be claimed on expenses incurred in another state if the state of billing is different from the state in which the expense is incurred.
  • Complications due to electronic system of GST: Small businesses that are not digitally savvy may find the online registration and filing process of GST returns complex, increasing their dependence on professional assistance.

One expects that over a period of time these issues would be addressed by the GST authorities. I recall the 90s when Titan entered the scene with quartz watches. HMT was ruling the market and known for self-winding watches then. Titan carried batteries. Initially the customers were not willing to even try Titan because they believed battery-run watches were unsafe. As distributors of Titan we had to overcome this resistance. It took time for people to accept the change. It was not technology but the mindset of the people that was creating the block.

Kottaram Group wears multiple hats: retailer, distributor, service provider as CFA and manufacturer of Soulfull, and yet we are very thrilled about GST. With GST there is finally no more excise duty, KGST, or the check post, and the related hassles will become a thing of the past over a period of time. There would be lesser cost of logistics – transit speed across state borders would increase leading to lower cost of inventory. Yes, processes have gone up, the cost of compliance has increased, and digitisation has become inevitable. But I think this is a welcome change. Even though trade has been affected by market resistance to Demonetisation first and now the GST roll out, these have to be considered as short-term hassles in order to foster long- term effectiveness.

For smaller players, GST will be a challenge, not because of anything else. Their challenge is that finally they will have to account for sales! I see the argument that a good percentage of traders are not GST registered yet. Even during the VAT regime, if a trader had an annual turnover of Rs. 40 lakh, he/she needed registration. Which translates to roughly a sale of Rs. 10,000 per day. Do you think it will be a viable operation if sale is less than Rs. 10,000 a day when a retailer has to pay rent and salaries?

Many businesses started reporting revenue when VAT came in. Till then most businesses were run on paper slips and cash transactions. Likewise, GST will also result in many businesses becoming tax compliant.

Let us consider a case in point. The photostat service provider opposite my office does not have GST registration. My monthly bill with him is about Rs. 10,000. If the service provider has GST registration, then my monthly bill will be Rs. 11,800 (GST 18%). Now if as a business I decide to go with a vendor without GST, then I will end up paying Rs. 1800 as reverse tax. If I had chosen the latter, Rs. 1,800 will become my input tax credit. As a law-abiding business it is better for me to engage a vendor with GST registration.

A person’s unwillingness to drive an automatic car because he is so used to a car with gears – I would compare the pushback to GST with this mindset. That mindset is so regressive yet so many are very comfortable in that world.
I welcome GST because it creates a much better level playing field. It forces thousands more to become legally compliant. The hassles that we are facing today is similar to that created by any disruption or innovation in the marketplace. When we moved from QWERTY phones to touch phones or from bookkeeping to computers. It’s a new habit, a new way of doing things which we have to learn to do. Once we ride that curve, it’s going to be worthwhile.
I do not see cost of compliance shooting through the roof even though number of invoices have may increased. But cost of compliance will be 100 per cent for those who were not complying with VAT or ST earlier! Those are the folks who are vehemently opposing GST or crying hoarse and calling out the quarter empty glass!

Tax leakage will drastically reduce though elimination may not happen, in my view. There was a time (1974-75) when the highest income tax slab was 97.75 per cent. At that time being honest was untenable. But today income tax rate is reasonable and it makes sense to be compliant. My only submission is if GST can be made a single source levy at first point instead of the current distributed model, then all these hassles can be done away with. Similar to how the wealth tax was done away with when the government realized that the hassles and related costs were not worth the wealth tax collected. That would be a happy day indeed.

(The author is Founder, Kottaram Group Companies)