This post is about my experience with GST. It is not about technical or software problems with GST portal. It is about the design and implementation of GST.
A manufacturing firm that was paying 2% CST is now paying 12% GST as tax for its goods. Price of the product has not been increased. Excess amount in the company’s invoice is the additional 10% tax due to GST.
The firm logs into the GST portal for the month of July. In form 3B, it has declared summary of sales and purchases. As per GST, it has paid the tax amount online and filed form 3B before due date. After that, it has also updated sales invoice details and filed form 1. Now it is time for forms 2 and 2A. It opens form 2A, and to it’s dismay found the form empty. None of the firm’s suppliers have filed their GST. So, the firm updates its purchase invoices and files form 2 before due date.
Next month, it files form 3B and tries to pay tax online. It checks the online get credit ledger to use previous month’s ITC to pay this month’s tax. But it finds only a small amount credited to its ledger. Rest If the ITC is not available. The GST portal has no information about the missing credit. No intimation, notices or orders.
The manufacturing firm checks with its suppliers. Most of them are still facing system and network problems in filing previous month’s GST. Some are having problems with their GST identifier and registration itself. They say they are still waiting for resolution from government. So, the manufacturer learns that he will not get credit for the taxes he has paid to these suppliers till their system problems are resolved. He has to pay cash from his earning. He has to wait hoping the system will become stable and he will get the ITC credit sometime in future.
For any delayed GST filing in a supply chain, the others have to pay from their earnings to prevent delays or loss to the government. I ensure I buy input supplies only from registered and reputed suppliers. But still I pay from my earnings to make up for the GST system problems or delays they face.
So, what is the government’s role here? It can take its own sweet time to fix the system, resolve GST registration problems or catch tax readers. Till then, the government will not lose out any revenue. Other timely honest tax payers in the supply chain will pay from their earnings to make up for the government’s revenue.
Traders and dealers in India are usually accused of having a no- loss mindset. They do risk free, safe business passing on losses to their suppliers. If a customer does not pay in time, they will delay payments to suppliers ensuring their losses are minimal. Now, the central government of India is taking this approach. All delays and loss in revenue is routed to on time honest tax payers, ensuring government’s revenue is safe at the expense of the tax payer.
The GST system was initially proposed as a simple and straight forward system where taxes are collected and credited seamlessly throughout the supply chain. But, during implementation, new tax rates came as a rude shock. Additional 10% to 25% taxes were imposed on many products. Two months after implementation, unpaid ITC credits come as the next big shock. Suppliers, manufacturers and dealers pay from their hand for any unfiled taxes in the supply chain.
Moreover, for the first 3 months (Jul – Sep), everyone pays taxes first then files invoice level details. So if there are differences between sales and purchase values, it will be leisurely credited to the tax payer after a month or two. Government will receive its taxes at the start and balance out accounts and pay out credits at the end.
The government gets seamless revenue now, and can catch tax evaders and iron out system problems slowly. Till then other tax payers pay from their pockets to make sure government has no losses. This is the essence of the design and Implementation of the GST system.
All this together spells doom to India’s manufacturing sector. Small scale industry is losing out heavily and fighting for survival. A government grabbing money from small scale industry to make up for its revenue is the first of its kind in the history of this country. A democratic and humane approach to governance is the need of the hour to revive economy of India and give a thrust to small scale manufacturing.