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Last updated: 15 Dec, 2017  

FICCI Logo Impact of GST on SMEs: Mixed reactions from state Finance Ministers

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Saurabh Gupta | 15 Dec, 2017
The implementation of Goods and Services Tax (GST), dubbed as the single-most important reform measure in the annals of India's taxation regime, witnessed three State Finance Ministers express their views ranging from "unprecedented in its adverse consequences, especially for the SMEs" to "a deal that gives a virtual tax insurance policy to the States" and "a Herculean task of integration of all taxes into a common and uniform tax code".

The Finance Ministers – Dr. Amit Mitra from West Bengal, Dr. Haseeb Drabu from Jammu & Kashmir and Sushil Kumar Modi from Bihar – spoke in New Delhi on Thursday at the Special Session on GST, on the concluding day of the 90th Annual General Meeting of the Federation of Indian Chambers of Commerce and Industry (FICCI).

Dr. Amit Mitra declared that West Bengal's stated position was that it had agreed, in principle, to bringing in GST. But the hasty manner, in which it was rolled out, had taken a huge toll on the revenue collections. For instance, revenue collections in October 2017 at Rs. 83,346 crore are significantly down from the September figure of Rs. 95,131 crores. He expressed concern at the dip that the November figures would show.

Dr. Mitra cautioned the business chambers to be wary of the provisions of arrest under the GST law and advised them to oppose the provision.  According to him, filing of FIR under the due judicial process was the way to go.

Alluding to the political economy of the GST, he said that it was demonetization that first throttled SMEs and the pre-mature launch of GST has landed them in dire financial straits.

Dr. Haseeb Drabu said these were still early days and it would be unfair to judge the GST system just yet. "Give it another three to four months. If the government and the GST Council are as responsive as they have been, what we have in the making is a robust GST which works for business, the Central Government and the States," he emphasized.

He said that the biggest gain of GST was that it represents India's first truly genuine federal legislation. Revenues may not have increased in the last couple of months, but the regime has given the States a sub-national freedom to legislate. The transition, he said, was not as glamorous as globalization and liberalization, but it marks a certain move towards formalization of the economy.

Dr. Drabu said, "The most import aspect of the legislation was that GST changes the basic ethics of the country and the regime's transparent processes enable us to know exactly what is going where."

The States, he said, have got "a wonderful deal as GST guarantees revenues at 14 percent growth year-on-year and what we have is a virtual tax insurance policy for five years."

Sushil Kumar Modi said that GST was being opposed by fabric and textiles sectors, MSMEs and small traders as they had come under the tax net for the first time. Besides, the consumers were opposing GST as a tax rate of 28 percent seemed too high. However, he noted that in the pre-GST era, the tax rate was more than 28 percent but as excise was included in the commodity price, it was not visible. He hoped this would be resolved by the GST Council and the final visible tax rate brought down to 14 percent.

Sushil Modi, who has witnessed the process of implementation of both VAT and GST regimes closely, said that when VAT came into force, the then finance minister had announced compensation for three years for states. But even after two years, no state came forward to claim compensation.

He was, therefore, confident that with the government announcing a compensation period of five years after roll out of GST, there would be enough cushion to satisfy the States.

He said that the aim of the GST Council in the coming months would be to reduce the number of GST slabs and bring electricity, petroleum & real estate under the GST ambit. Speaking about the anti-profiteering clause, he said that it was brought about to ensure the passage of benefits to consumers by the manufacturers.

He said that sorting out 37 different tax jurisdictions and 16 different tax levies and integrating various taxes in GST was a Herculean and unprecedented task. Highlighting some of the challenges in the implementation of GST, Modi said that simplifications of the IT network and processes were the top priorities besides the need to reduce the existing tax slabs.

Harsh Mariwala, Chairman, FICCI Task Force on GST and Past President, FICCI, who moderated the session, said that while the complex GST legislation faces issues in Implementation, it was just a matter of time before these would be resolved.

FICCI's Outgoing President Pankaj R Patel, Incoming President Rashesh Shah and FICCI Secretary General Dr. Sanjaya Baru also shared the dais. Dr. Baru while welcoming the three state finance ministers for the interesting session pointed out that their contribution to the GST implementation had been acknowledged by the Union finance minister.
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