GST: A tax reform so huge that confusion was inevitable

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It was always expected that the Goods and Services Tax (GST), which replaced a multitude of central and state taxes from July 1, would create confusion in the beginning. However, no amount of planning could have prepared the country for the disruption created by the rollout of the ‘new normal’.

For one, shopkeepers across the country were forced to continue selling old stocks at pre-GST rates on July 1, as they waited for manufacturers to release freshly packaged products with updated maximum retail prices (MRPs). The old MRPs include value added tax (VAT), and shopkeepers couldn’t simply update prices by adding the new GST, as that would have inflated prices substantially.

In the hospitality industry, some restaurants that did add the new tax to bills wound up facing customers’ ire since they had not first deducted the old VAT from menu prices. For the same reason, hotel bills too became bloated.

Even drug sales were affected in parts of the country, as pharma firms slowed down production of medicines to exhaust existing stocks. Technical glitches added to retailers’ woes, as software vendors struggled to update systems from VAT to GST, leaving 30 per cent of chemists closed in Mumbai on July 1. Some resorted to writing bills manually, while others complained that they had not been issued their goods and services tax identification number (GSTIN)-a 15 digit code without which traders can no longer do business.

The entertainment industry was affected as well-in Tamil Nadu, about 1,100 cinema halls were shuttered as owners went on strike to protest the 30 per cent municipal tax the state government imposed on tickets, on top of the GST. The GST rate for movie tickets of less than Rs 100 is 18 per cent, while tickets priced over Rs 100 attract 28 per cent – which meant that movie tickets in the state attracted a minimum tax of 48 per cent, up from 15 per cent.

In manufacturing, small businesses found themselves bedevilled on two fronts. First, the prices of most goods have risen thanks to GST, leading to fears that clients would place fewer orders. Second, manufacturers now need to file returns on the 10th of every month, compared to once in three months earlier. Since most customers do not pay the full cost upfront, this puts additional pressure on manufacturers.

The worst hit, however, are automotive dealers, who stand to lose input credits (tax refunds on the final cost of goods based on taxes already paid) on their inventories of spare parts older than one year. “What about the taxes we have already paid on the accounted inventory? How do we recover them?” asks Nikunj Sanghi, director-international affairs and past president of the Federation of Automotive Dealers Association. There are 23,000 dealerships in India, and about half of them have been affected.

In real estate, where a 12 per cent GST on work contracts has replaced all taxes except stamp duties and registration fees, buyers are likely to wait and watch before making new purchases, stressing an already wobbly sector further.

The only unqualified early benefit of the new tax regime was the reduction in traffic at entry points to cities such as Mumbai, as state governments dismantled the checkposts used for collection of octroi. Meanwhile, Shobana Kamineni, president of the Confederation of Indian Industry (CII), says “Large numbers of government officials, tax experts, and CII stand ready to support enterprises in the implementation of GST,” adding that initial glitches were expected to be quickly sorted out.

Read more at: http://indiatoday.intoday.in/story/gst-good-and-services-tax-vat-kolkata-cloth-merchants/1/995396.html