GST: Is it Really A Tool To Check Black Money or Not?

GST was always an ambitious plan when one takes into consideration the diversity that India as a nation subsumes within its territorial boundaries. From conflicted Kashmir in North to Kanyakumari in the south and Kutch in East to hills of Arunachal in the west, Indian Subcontinent witnesses a diversity matched by no other nation on the planet. Hence, a unified tax system was always going to take months of drafts coupled with frequent editions to bring one and all on board.

Hence, the Central Governments successful effort of drawing a consensus within a three month period deserves praise and accolades. However, a common agreement that binds all states of India to the GST is the compensation agreement between the state and the Central Government.

This agreement ensures that the Centre will compensate for the initial losses accrued by states as a result of GST implementation. It has been more than a year since the new tax law was introduced and that states and union territories have been paid Rs 52,077 crore in compensation during the period. Experts believe that this agreement coupled with the center’s recent decision of GST tax relaxation on essential goods and services in the light of increasing GST accrues could be a recipe for disaster.

One key highlight from the current fiscal year is that of the states reporting shortfall in revenue of up to 43%. This was a topic of discussion in the last GST Council meeting as well. Amidst these recurring state losses, the center’s decision to relax GST rates will only burden states further. This could mean more revenue loss and greater compensation cheques for the Central Government. Unless GST accrues increase drastically, the tax black hole will only get bigger and denser by each fiscal quarters,

The Economy Softpoints:

• Non-buoyant Revenues

The tax base has no doubt increased but tax revenues have remained the same or gained small spikes. This is clearly evident in the monthly accrues for current Fiscal Year with that of previous. Hence GST revenues it seems will make up little for the increased compensation burden post rate relaxations.

• Tax Evasions

NAA State bodies in 17 of the 29 states have reported zero cases of anti-profiteering may reflect a robust center-state machinery. However, beneath the surface, there are reports of new adaptive methods of tax evasions. This cannot be entirely faulted on the administration alone. GST is a complete technology reliant tax mechanism. Hence, it will not err as long as people and businesses adhere to the rules in a straight line. But human nature is unpredictable. Especially when they have been used to open hand tax evasions in the previous regimes.

The Prime Minister Narendra Modi states GST as a celebration of Honesty. In some way, we can regard that the failure of GST will more due to the will of the people than the administration. And this is absolutely right.

The GSTN Network can no doubt be used to check false practices via sellers and buyers invoices matching. However, in a country like India where 95% of the tax collections come from a meager 5% of the businesses, invoice matching is a partial solution to long-standing issues that till date are used to bypass as well as benefit from GST complexities by businesses of all size and scale.

These practices include:

• Misclassification of Goods and Services
• Under and Over invoicing of their sales and purchases
• Fake invoices for overheads, like transportation, entertainment and so on
• Muster roll fudging
• Fake billing to claim input credit (Misuse of GST Exemptions)
• Manipulation and bypassing complex rules which are hard to scrutinize and detect at a single glance.

The above issues contribute greatly to India’s long flourishing yet unchecked black money assets as well as the branches of the indirect economy. Hence, Demonetisation despite the naysayers was a strong counter administrative move to lay the ground for GST embracement by India as a nation. However, for this to have completely gone as planned, a more simple and easy compliant GST could have better placed both states and the Centre to accelerate adoption.

A golden example is that of the e-Way bill which by far appears to be the most leak-proof and technically efficient Central Scheme to come into effect till date to track the movement of goods and check black income generation has been accused guilty of reinstating the yesteryears Inspector Raj. But this a narrative that the so-called blue-collar media will use every day. A greater question that remains unquestioned is the willingness of the people to abide by the new norms and participate in Nation Growth. However, this would need a complete overhaul of the present pay structure and power centers in the Police Administration. This would indirectly burden the state finance machinery. A ying-yang point of modern Indian Politics-Administration to say the least.

In conclusion, the success of Demonetisation will always be questioned by one and all which includes the modern-day media puppets as well as political foes too. GST is to early to be evaluated and certified. The GST rate relaxation is more a political necessity than an economic one. However, for the greater good of the Nation that even eclipses the outcome of the upcoming elections, it is important that India as a Nation wakes to the call for a more self-policing and honesty adhering nation. And GST even though troubled by complexities and ambiguities offers a faint little yet plausible opening to that reality where India acts a United Nation with one and only goal of ‘development for the people, of the people and by the people’.