GST: Long-term gain eclipses short-term pain

Albert Einstien once said that the most difficult thing to understand in the world is taxes. Whereas that is true for all tax regimes, Einstien also said simplicity is the ultimate form of sophistication.

It is with this view to simplify the existing indirect taxation structure, to bring in greater transparency and to reduce redundancy that the Goods and Services Tax was conceived.

As GST rolls out, there is a lot of hue and cry over the disruptions it will cause in trade and commerce. However, it is the fear of the unknown and changes in procedures and compliances that people find unnerving, as well as the uncertainty surrounding what the impact on sales will be in this quarter.

Depending on the tax rates, sales will either get advanced or postponed. Apart from that, the apprehension is nothing beyond the short-term concern.

The government has been mindful when framing the tax slabs, which have been iterative, given the criticism it faced.

The multiple tax slabs have been adopted so that the GST doesn’t end up becoming inflationary.

However, there will be things that will be cheaper and those which will get dearer; but on an aggregate basis a widespread inflationary impact is not expected, especially because the government has signalled its seriousness to enforce the anti-profiteering clause if the need arises.

Apart from that, the other major concerns are that of demand getting impacted. This fear is grossly exaggerated.

Consumption is going to remain unimpacted by GST implementation and given that, any structural change in the taxation regime will only lead to strengthening the economy and is positive in the long run.

There is a good saying about change, that change is hard at first, messy in the middle and gorgeous at the end.

Such is the case with any structural reform. The concerns surrounding it outweigh the actual impact.

Some segments will get impacted for a shorter period of time and some industries would change for the long term. But that is the idea behind this reform. Similar kinds of structural reforms have happened in capital markets in the past, when we migrated from the outcry system to online trading and from physical settlement to dematerialisation settlement.

There were a lot of worries around job losses, cost increase, and volumes going down. In hindsight, the results are evident. These shifts have created a much larger, efficient and better marketplace.

Certainly, there were impediments at first, and things were ‘messy’ till we got used to them, and eventually it led to structurally smoother, safer and more efficient systems.

Likewise, GST’s implementation impact can be extrapolated. In the long term, it would not only eliminate tax redundancies, but also reduce the effective tax burden.

There would also be a marked reduction in compliances and, consequently, logistical costs will reduce.

This would lead to enhanced scale and efficiencies. All of which would collectively act as a catalyst in driving the shift from the unorganised to organised segment. Moreover, it will lead to a one-nation, one-market, one-tax regime.

The writer is President and CEO, Edelweiss Securities

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