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    Published On : Tue, Jul 4th, 2017

    Like Demonetization, will GST affect smaller places like Nagpur adversely?

    Bigger companies with more access to professional help may find sailing into the new GST rules smooth, but it is going to be turbulent weather and a lot of ‘ship wrecks’ for smaller players, especially if they exist in smaller cities.

    To add to the trouble, most CAs and their firms have already hiked their professional fees by 30%.

    The new softwares that are coming up to be GST compliant are, till now, not compatible to present accounting software.

    Many experts have been cited as saying that different states of India, will fare differently under GST (since some are manufacturing states like Maharashtra and Gujarat; some are service oriented states like Goa and Kerala; and some are agricultural states like UP) but the reality on the ground seems to be that again like in demonetization, smaller cities and towns, and rural areas stand to be disturbed more in the after shocks of this latest ‘money-quake’.

    Department stores and food retailers have modified their invoices to show the GST amount, but there are a lot of errors in the bills. For instance one consumer was taxed 40% for a can of juice (the actual rate is 12%).

    It is unclear whether alcohol served at restaurants is to be taxed? Although ‘Alcohol for human consumption’ has been left out of the GST net, alcohol served at restaurants is a service, which comes under GST.

    If you buy food at a food court in a Mall, will it be subject to tax at a rate applicable in a restaurant?

    Implementation is the key
    The mega launch is over. Once the hype settles down, the government machinery will have to work overnight for the next few months at least to facilitate a smooth transition. The government has given relaxation till September for companies to comply with the new rules. But the big disruption will happen not among big companies but small businesses, which are largely in the informal sector. One cannot thus rule out job losses and panic reactions in this segment.

    The GST launch sans implementation plan can backfire for the Modi government in the months ahead. Expectations of benefits are sky-high among the public from the new tax regime. The government would do well to tread cautiously as the roll out is likely to be a major disruptor for both big and small industries. Immediate follow-up actions to bring awareness and facilitate the transition must be carried out at state levels.

    One big question is whether there are enough dispute institutional mechanisms when the GST is rolled out and companies work on invoices and tax credits. The key point here is that dedicated offices must be set up to address grievances and clarify rules for small entrepreneurs. Already, there are concerns among small businesses about the transition process. The government will have to work overtime to ensure that GST roll out doesn’t become a repeat of post-demonetisation chaos. The likely adverse outcome of GST could include increase in compliance cost for small entrepreneurs. Many of them may choose to shut shops resulting in job losses.

    As on the 4th day of GST roll out the Single Server of the Finance Ministry that has GST software is not yet connected to any of the concerned departments downline except to Customs, reports one local businessman who is in the software plus import business.

    Not yet recovered from demonetization
    Said a trader who did not want to be named, ” we are seeing our post demonetization troubles peak now. Earlier people suffered, now business’ is suffering due to the sudden disturbance in the currency flow that resulted after ‘note bandi’. It took time for the effect to filter down to business while people were affected immediately.

    But now the damage is clear – turnover and business of most small business’ is down by 40% to 50% -in some cases business’ have gone into red too, or closed down.

    For those that somehow still managed to keep afloat, this move might deprive them of the last straw as well.

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