Shri Dinesh Gulati / IndiaMART.com
During my recent visit to the US, I had the opportunity to interact with heads of many successful businesses. While the interactions were highly enriching, I also happened to take a sneak peak at the country’s economy and its innate conduciveness to businesses. To a great extent, the credit for this goes to its tax system, which is one of the most progressive in the industrialised world. The US is a federal republic with autonomous state and local governments. Taxes are imposed at each of these levels. Unlike other countries across the globe, in the US taxes are collected by federal, state and municipal governments and these taxes vary widely.
One might believe that such a layered tax structure can place heavy burdens on small businesses who are involved in inter-state trade, and that a fully federal tax system can make things simpler for these businesses. However, we have to keep in mind that the US and India are very different markets and the economic ecosystems are also very different. One-size-fits-all is never a good idea.
Today, India is one of the fastest growing economies in the world. However, its position in the ‘doing business’ annual reports published by the World Bank is less than favourable. The rankings place India at 134 among 185 countries; way behind its BRICS counterparts. This shows an urgency to focus on improving the country’s business environment and arrest the decline in relative performance against various determinants of investment attractiveness.
Fortunately, the approval of the GST Bill in the Lok Sabha is showing possibilities of a transformation. We could call it a ‘game changing reform’, which will turn our country into a single, big market with reduced transaction costs for businesses and reduced economic volatility. India is set for its boldest tax overhaul in 60 years.
At present, while starting a new business in India, we have to get our VAT registration from the state’s sales tax department. Since every state has different procedures and fees for VAT registration, it is hard for businesses operating in multiple states to obtain and maintain compliance with VAT regulations. A clear roadmap for implementation of GST in India will centralise and standardise its registration procedure similar to service tax registration. With the new tax regime, businesses would no longer have to obtain multiple VAT registration, thereby improving the ease of starting a new business in India. Businesses will finally be able to look beyond the noise of confusion and uncertainty.
In my opinion, the country’s micro, small and medium enterprise (MSME) fraternity has contributed tremendously to the Indian economy and the time is ripe to generously support and equip them to establish a strong foothold in domestic and international markets. We urge our government to look out for ways to simplify and unify taxation for MSMEs and also consolidate multiple departments, to address compliance issues. Due to their small setup and thin management, small businesses grapple with higher and multiple taxes. GST is thus perfectly poised to act as a game changer for the Indian economy. There is a dire need for a clear and unambiguous definition of goods and services, and a pragmatic approach towards faster implementation of GST.
We also expect a major simplification of indirect tax structure at both the Central and state levels, thereby replacing the multiple layers of complex taxation currently existing in India. GST will play a ground-breaking role in replacing all indirect taxes levied in India. This would be a vital step in favour of MSMEs as it intends to purge the current central excise duty, service tax as well as additional customs duties at the Centre. At the state level, GST will put an end to the present value added tax (VAT). E-commerce players in India have to cross several layers of taxes like VAT, central sales tax and service tax, which causes delays in the final product delivery to the end consumer. GST will help in removing the bottlenecks. When 140 countries across the globe are already using GST in some form or the other, this rollout would allow India to adhere to a standard world policy.
Currently, goods and products are being taxed under the VAT regime implemented by state governments, and services are taxed under the service tax regime implemented by the Central government. Further, in addition to VAT and service tax, there are various other tax regulations that businesses must comply with like central sales tax (CST), additional customs duty, purchase tax, luxury tax, etc. The integration of these multiple taxes in GST will wipe out the distinction between goods and services, and ease compliances. Further, invoicing will be easier for businesses as only one rate would be adopted.
The author is Director, IndiaMART.com