The cost of complications.

At its meeting yesterday, the GST council reduced rates of tax on 27 goods and allowed small businesses to file returns every 3 months. GST, or the Goods and Services Tax is meant to simplify indirect taxes that we pay every time we buy any product or service. Previously, taxes were levied at every stage of production so we were paying taxes on taxes, but with GST the tax paid at a previous stage of production is deducted from the final tax, known as input tax credit, so that the final tax burden on consumers is less. New rules will allow businesses with an annual turnover of Rs 15 million to file returns every quarter, although they will still pay taxes every month. This covers 90% of businesses who pay only 5% of tax. It is not just a question of rates but of risk cover for businesses, wrote Indira Rajaraman. Previously, a retailer would return any unsold goods to the wholesaler and pay only for those he was able to sell. The wholesaler accepted return of unsold goods because he could pass them on to retailers with higher sales. A wholesaler could return defective goods to the manufacturer and pay accordingly. Under GST rules, vouchers of the wholesaler and retailer have to match for the retailer to claim input tax credit. Retailers reduced orders for fear of not being able to claim refund of unsold items, which led wholesalers to do the same. This resulted in falling growth. Matching of vouchers means that every letter has to be exact, which has increased compliance cost. "Let us say a GST-registered trader uses the services of a small courier company which is in the composition scheme and charges GST, but does not have to issue any vouchers. GST on that input cannot therefore be claimed by the trader buying these courier services..." "Voucher matching is not a standard feature of value added taxation systems anywhere in the world, except in China's Golden Tax Project." "And Modi, everyone knows, is a great admirer of the Chinese economic model," wrote M Chakravarty. "Modi's faith lies in the heavy hand of a strong state, rather than the invisible hand of the markets." Exporters were unable to claim their tax credit, a total of Rs 650 billion, and had enormous problem with liquidity. More than 2 million tax officers are to monitor the trillions of transactions taking place everyday. The income tax department had to refund Rs 1.42 trillion in excess taxes to 16.2 million taxpayers last year. Apparently, tax credit of Rs 650 billion has been claimed against a total of Rs 950 billion paid in GST. What is the point of spending trillions of rupees on salaries and perks of millions of tax officers to collect a few billions? The more they squeeze the less they get. Citizens always lose.