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GST ke side effects

by on July 13, 2017

Tax_Regime_in_India.png

But Where Are the Reforms?

These five words form a façade for the status quoist who firmly are not able to believe Modi can’t reform.

The Hedge Maze of in the picture has collapsed and replaced by Goods and Services Tax. It is has just opened an avenue where things are streamline. Frm 1/7/2017 when India celebrated Chartered Accountant Day. Irony just found an account entry.
In many of the initiatives (reforms?) that Modi Gov has taken there is one common idea. The idea is reforms address multiple issue at once. Death and taxes are inevitable, but Death doesn’t come twice. The are other jokes on taxes are on these Link 1 and Link 2 . Often Tax code is complicated because Gov is running companies and financial institutions and it provides a bulwark if not short cuts for taxes. In case of India, where one percent people pay income tax, indirect tax become crucial for government to raise revenues.

Tax Regime is single point focus of corporate strategy. A change in indirect taxes will surely have a ripple effect across the board. A lot of paper work (time, effort, etc) was wasted often to skirt this tax issue. Then there were court cases between Gov and Gov departments, Gov department vs Gov companies, Companies and Companies, Individuals and companies and variants of various stake holders. The cutting down of the tree as indicated in the two figurines is best understood by someone who must report to more than two bosses. It is nightmare. The capital that locked up in these cases and arbitration would probably thin down going forward.
On one hand, the companies now must gear up to study and improve their strategies and go lean, meanwhile the Gov too will have to up ante in their side. This makes the system a touch less opaque. It means government will beat around the bush a little less, the tax credit and tax collected will have to be computed “real time”. Here real time means end of the month as compared to end of n th financial year.

I happen to ask my accounts boss, “Sir how does GST affect us?
He replied, “Now only two taxes instead of 17!”
I asked “” Sir how does it help our sector of business?”
He answered, “Monthly tax credits instead of once in five years”

Often in India, companies wanting to operate in more than one region, use to carefully study taxes in different region before expanding to other regions. A whole setup was often created (again paperwork) often at the cost of productivity. I guess with collapse in Indirect taxes at least the decision to expand will take less time, setting up of business, generation of products (here products are good and services both). This will have huge impact on logistics to start with. One can imagine the effect of production and productivity when the time take for goods going to neighbouring state and their payments happen in couple of days rather than a week.
The ripple effect will be for all to see by Diwali.

Why Diwali?

Diwali is yearly Quantitative Easing of India economy only weddings season comes close often these two overlaps. Dhanteras falls on 108 days after GST was launched, in current Financial Year it is the end of the first quarter. By the end of second quarter, the impact of rains and hence scenario of agriculture would be known. In next three weeks, Quantitative Easing would hit the markets. It is enough time for everyone to understand how the system works, probably the calculations would be ready by now. On 1 of August preliminary data would confirm this hypothesis.

To summarize, Side Effects of GST

Lesser Paperwork (Redtape)
Decrease in Ji Hazoori of Departments.
Ease of Filing Taxes.
Quicker, earlier and timely Tax Credit.
Quicker Cash Flow.
Quicker Asset Turnover.
Quicker realization of bills.
Quicker settlement cycle from Inquiry to Billing to Tax.
Blow to Parchi/Farji Bills.

On Gov front
Quicker Tax collection.
Online verification.
Quicker revenue settlement with states.
Reduction in time cycle for settlement on taxes.

Now Onus on Tax Inspector to be accountable and not brood sitting on a china egg.
No duplicate on desk one triplicate on desk two, blue form red form and green note.

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