Will GST Rollout be a deja-vu of Demonetisation
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Opinion may still be divided on the fiscal impact of demonetisation but one lesson should be clear to all, the perils of going in for a mega disruption without adequate logistics and back-end preparation. It may be argued that much of the economic dislocation after demonetisation was due to the Modi Government not anticipating the immediate fall-out of the move. This led to daily knee-jerk announcements that only compounded the confusion and delayed recovery.
The nation is now at the cusp of another mammoth change – the Goods and Services Tax that seems all set to be rolled out from July 1. Even if political expediency or administrative pragmatism results in it being delayed by a couple of months, as per the GST Act it can be no later than October 1, 2017. But even three months is not a long time and, understandably, there is feverish apprehension about what may be in store.
Usually the Government machinery is remarkably resilient to cope with legislative changes. But, a reform of this humungous scale that will uproot the entire revenue collection system across the country is unprecedented. Therefore, despite the most detailed homework that must have started months back, it is impossible to predict the ramifications of the overnight change of national tax regime.
Further, in the case of GST, unlike for demonetisation, complications will occur at multiple levels. Even if the Union Government has geared up for the shifts, it is unlikely that all State Governments would have the same degree of preparedness. Besides, some States, which have been dragging their feet on GST, may not have begun work in earnest and are likely banking on a period of grace.
Perhaps, the biggest learning of demonetisation was the challenge in managing the last mile. We Indians are genetically coded to believe that there can be a 'jugaad' for everything and there is no way that the Government can bring everyone into the net. In demonetisation the Government realised at a heavy cost the problems of reaching the lowest denominator in the chain (which, in the case of demonetisation was the villages and rural banks) and the people who were hoping to beat the system were stranded in a no man’s land.
A similar denouement could be awaiting the GST rollout. While big businesses are busy getting themselves GST ready and also lining up their primary customers, they have absolutely no visibility or control over the next level. A time bomb could be ticking there waiting to explode after D-Day.
Surely all potential problems cannot be anticipated and answers have to be found on the go, at the time of crossing the proverbial bridge as it were. However, for that the Government would need to have a very large but nimble footed team to deftly and speedily tackle the contingencies. But here again the States can play spoilsport by refusing to play ball with the Centre and seeking further concessions.
An additional variable in the case of GST will be the local offices of the State Tax Departments. During demonetisation, down the line bank officers had little leeway to interpret the rules or subvert them. For GST, however, the District and City Tax inspectors have immense ability to cause havoc – whether deliberately or due to ignorance. How the States, especially the sulking ones, set up quick redress mechanism for such anomalies would be crucial for the transition.
Surely these thoughts are crossing the minds of Finance Minister Arun Jaitley and Revenue Secretary Hasmukh Adhia, the two main architects of GST. But coming to a crunch they will have to compromise or make ad-hoc exceptions. This is already evident from the protracted negotiation for GST slabs resulting in multiple rates that at times appears to be more complex than the earlier indirect tax structure.
Whatever it is, one trusts that no one wants a derailment of the economy as that will really set the clock back by a couple of years at least. Unlike some States who may have their own agenda in delaying the deed, business and industry would prefer to get over with the birth pangs during the lean season of the monsoons before the festivals start.
This is the time the country needs a full time Finance Minister and hopes the Prime Minister will soon find someone to relieve Arun Jaitley from his dual charge of the Defence Ministry.
Till then Tax Consultants and Chartered Accountants will make hay prepping clients for the biggest tax reform in India’s history. The frenzy of activity that corporates are undergoing to effect a seamless transition is reminiscent of the Y2K drill. Except, unlike the 2000 oa, GST is unlikely to be a damp squib.