Mangaluru: Tax reform faces challenge, GST sees 'Surgical Strike'

Mangaluru, Oct 11: On Friday October 6, the Central Government announced a major revamp of the much touted Goods & Services Tax (GST), bowing to public pressure, mounting criticism and setback in revenue collections. GST was a very ambitious exercise, and a complete switchover to a new regime of taxation was an immense challenge for the Central and State governments, tax departments and the consumers alike. Many countries that transited to the GST system of taxation had to face considerable challenges and many governments which had initiated the GST even lost the next elections. Canada is often cited as an example of this.

There is a great reluctance in the minds of the business community in India to migrate and join the new tax regime of GST. Though everything about GST is simple – a single registration, one tax, one invoice, one return, self assessment, system based compliance, no interference from Tax Departments, there is a great reluctance to participate in a transformational shift to a new tax regime, why? Till now the business community was complaining about complex multiple taxes, multiple departments, complicated paperwork and tax returns, unending litigation and corruption. When a bold decision has been taken to switch over to a new tax regime nobody is willing to join. What could be the reason?

The successful working of the GST calls for uncompromising transparency, straightforward transactions from A to Z. It entails recording of each and every business dealings in the GSTN network, whether dutiable or non-dutiable. The entire spectrum of transactions are transparent, there is no scope for underhand dealings, inflating of invoices, cash dealings to suppress income, tax evasion, and Hawala arrangements. Suddenly the business community has developed cold feet and politicians are trying to subvert the GST. In a timely intervention the government has made some reforms which should spur the migration to the GST system.

The government should initiate a proposal to train the business administrators in the new GST system. Presently, training has been given only to the tax collectors; the taxpaying public has been left to figure it out for themselves the methodology of the new tax regime. This is where political rumour mongers have stepped in to instill fear and unwanted apprehensions. This gap needs to be addressed on a war footing. Universities, colleges, IIM’s, all need to be roped in to spread the efficacy of the new tax regime. The visual media should be tapped to disseminate the modalities of GST. This will enable a wide outreach to large segments of the population.

Once the confidence is built up the transition will become smooth and hassle free. Teams of taxmen and experts should be sent to educate the small businesses about the benefits of GST. The Prime Minister has also announced his idea to train and educate about a lakh of people on GST regulations. This is an excellent idea and will go a long way to ease the teething problems while transiting to a new tax regime. The government should enlist all B.Com, M.Com, CA trainees, MBA finance professionals, give them training on a war footing so that there is an army of tax educators in the field to assist anybody having difficulties. The GST is a game changer and it is the responsibility of every Indian to ensure its success.

Dr G ShreeKumar Menon Archives:

Dr G Shree Kumar Menon, IRS (Rtd) Ph D (Narcotics)
Former Director General
National Academy of Customs Excise and Narcotics,
& Multi Disciplinary School Of Economic Intelligence, India
Fellow, James Martin Center For Non Proliferation Studies, USA
Public Administration, Maxwell School of Public Administration, Syracuse University, USA
AOTS Scholar, Japan
Registrar, Yenepoya University, Mangaluru
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Comment on this article

  • A.T.Panneerselvam, MANNARGUDI

    Wed, Oct 11 2017

    A very good article. Training is required not only for the officers but essentially for the business community and the tax consultants

  • A.T.Panneerselvam, MANNARGUDI

    Wed, Oct 11 2017

    A very good article. Training is required not only for the officers but essentially for the business community and the tax consultants

  • sri_elder, Karkala

    Wed, Oct 11 2017

    Very good article...

  • munna a h, nitte karla

    Wed, Oct 11 2017

    Posting a WhatsApp message as received. Tell me if something is wrong in these calculations!
    A Builder purchases 1000 sqm land for 1.5 cr.
    Land purchase + Stamp duty + Registration + is 8 % = 8,00,000/-
    Construction cost for 1000sqm SBA is 1300 × 20,000 = 2.6 cr
    Sanctioned plan :
    Cost for Architect plan @3% ( 7.8 lac) + RCC @2% (5.2 lac) of construction cost + infrastructure tax @200sqm (2.6 lac) + overheads which is =
    Land cost 1.5 cr
    Stamp paper 8 lac
    Plan 7.8 lac
    RCC 5.2 lac
    Tax 2.6 lac
    Mis 5 lac
    Total = 1.8 cr
    Builder has 13 apartments each 100sqm
    Each costing 45 lacs
    Flat Purchaser pays 45 lac + GST + Stamp Duty + Registration
    GST 5.6 lac
    SD 1.35 lac
    Reg 90 thousand
    Builder pays 1% VAT on 45 lac
    Total 8.3 lac
    Per apartment sale government makes 8.3 lacs
    13 apartments × 8.3 lacs = 1.8 cr
    Builder had already paid ₹ 45 lac
    Income tax for land purchase amount of 1.5 Cr.
    Land owner who sold land to builder paid approx 10 lac for capital gain to Government.
    All in this process after construction work was completed Builder earned profit
    Sale of 13 apartments
    13 × 45 lac = 5.85 lacs
    Cost of construction
    1300 × 20000 = 2.6 cr
    Land cost
    Architect RCC etc = 1.8 cr
    Total. = 4.4
    Revenue = 5.85
    Profit = 1.45 cr
    After tax 1.45 cr - 30% = 1 cr
    Final economics:
    Builder earned 1 cr after working for 3 years selling off all his 13 units.
    Government earned
    From vendor 10 lac
    From 13 unit sale by adding GST, VAT, Stamp Duty, Registeration 1.8cr
    From builder as IT 48 lacs
    Total 10 lac + 1.8 cr + 48 lacs
    Government earns 2.38 cr.
    In the minds of public builders are looting People.
    This is economics of current situation

    Profession tax , fringe benefit tax of staff , free gifts to Govt officials... I am already tired of calculations.

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