Economy

Reading The Tea Leaves- How GST Implementation Is Likely To Play Out In The Next Three Quarters

GST world 
Snapshot
  • What the future holds for the politics, economics and governance scenarios after GST comes to effect

The forecast for Goods and Services Tax (GST) implementation and its political backlash will run something like this:

July-September 2017:

1. Daily fire-fighting by the government, and a regular stream of changes both to the rules and the rates of GST based on new assessments and lobby pressures.

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2. Gross Domestic Product growth will be particularly hit, as both industry and services, and small companies and traders, begin to adjust to the new regime.

3. Revenue growth may be slow, if it does not actually decline, as government focuses more on ironing out problems than on collecting revenues.

4. During this period, the naysayers will have lots of “I-told-you-so” moments, as government and bureaucracy and software engineers run helter-skelter to get the system up and running.

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October-December 2017:

1. This is the time the system will stabilise, and states will start closely monitoring compliance and assessees start facing the heat for non-compliance and underpayment of taxes.

2. Service tax assessees will face unwelcome scrutiny by states – something they didn’t have to face in the past. States will also start raising demands on their revenue flows, which will initially look problematic. The centre will have to dig deep into its pockets and ensure that states get the guaranteed revenue flows.

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3. In this phase, the Opposition will start shouting about slow revenue gains or reimbursements by the centre, even as the centre grapples with growing fiscal deficits.

4. More “we-warned-you” moments for the Opposition to score political points. The Gujarat (and Himachal) elections will happen just in this quarter, and with traders one of the worst affected segments under GST, the Opposition protests will be loudest in this phase. One should not rule out protests by tax authorities at both centre and states as jurisdictional issues surface.

5. The chances are the government will adopt a January-December financial year, and we will get a new budget sometime in late October or early November. Expect more political screaming in this quarter.

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January-March 2018:

1. This will the quarter where we will finally have visibility on how the multi-tier rate structure (3, 5, 12, 18, 28 per cent, and special luxury goods rates) is working, what its flaws are, and how the GST finally needs to be rejigged.

2. This is when we will know for sure if the early expectations of a revenue surge will materialise quickly, or only after a lag.

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3. With the Karnataka elections due in mid-2018, and with the Bharatiya Janata Party seeking to wrest the state away from the Congress, the BJP will be particularly vulnerable if GST is seen to be under-delivering on its promise, and issues remain unsettled.

4. This is the quarter when the broader approach to GST and course corrections will have to be finalised.

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