Don’t demonetize the GST

Within the next 10 days, India will witness is second massive reform since re-monetization last November. The intent has been noble. But the din is getting louder. The execution in re-monetization was of a scale that was tough to get 100% right. But even the biggest supporters of the re-monetization saw some obvious areas where the Government could have got it right the first time. We think the Government and administration can take cues from the re-monetization implementation to ensure that the GST surgery is relatively painless.

GST, much like re-monetization, is going to cause disruption and some degree of chaos. The din of thrice-a-month tax returns, state-wise invoicing and return filing, increase in working capital requirements, increased costs of most consumer services is already getting louder. The politicking is going to be ripe once again. Chartered accountants are already telling clients how the paperwork and complexity is going to increase in the post-GST era, and hence, ‘low ease and higher costs of doing business’.

"GST is a bold and laudable move. But its benefits will take time to show. What will show immediately is the labor pain in delivering these results? Much like the delivery of the baby, having the right anesthetist to suppress the pain is very important."

To think that this is not as far-reaching in consequence as re-monetization is naïve. One of the biggest and most loyal voter sections of the current Government are the traders and small retailers. And, they need to get the right epidural here. To top it all, one can be sure that a lot of consumer inflation or shortages in products will be somehow linked to GST pretty quickly. Far from intention.

The Government can re-use five learnings from the re-monetization days and apply to GST rollout:

• Communicate. And communicate again: Mr. Bachchan saying GST is good might not be enough. The stakeholders need clear, detailed and tactical communication. What is the process going to be? Which returns need to be filed? If you are a small trader, what you need to comply with? What paperwork will be acceptable vs not? Taking re-monetization cash withdrawal limits from Rs 8,000 to Rs 4,000 to Rs 2,500 came across as afterthoughts and whimsical. Good intent but long queues were an eyesore. It can be avoided.
• Address systemic ‘controllable’ flaws, before June 30th: In tax systems with input and output tax set-offs, it is important for the chain to respect the protocol. The biggest one is the ‘penalty on bounced cheques and immediate relief for the payee’. If a supplier defaults on the payment or a cheque payable bounces, timely GST payment by the aggrieved party can actually put a very significant strain on the ‘honest’ business. GST like systems works where payment obligations are honored. And, establishing the sanctity of a cheque (through strict and immediate penalties for the defaulter) is fundamental to GST success. We all know of this issue today. Then, why not fix it rather than appealing to the ‘honest taxpayers’ to endure unnecessary pain. Rolling GST out without fixing this is a recipe for disaster.
• Don’t allow intermediaries to profit: A regular business interacts with multiple stakeholders when it comes to accounting and taxation. The most important one is the Chartered Accountant. When people see intermediaries profiting from Government regulation, they hate the regulation itself. Easier said than done but the taxation officials need to be simplifying rather than seeing this as an opportunity to excavate past misdeeds or seeing this as an opportunity infuse more chaos in the way small businesses manage their accounts.
• Penalize the culprits; not the honest: Mr. Modi had rightfully said that the nation must endure the pain to clean up. Unfortunately, the honest over-zealous housewives who actually saved a fair bit of cash did feel inconvenienced. That would have been OK had the petty corruption or even use of cash otherwise had shown a significant decline. But it did not. And the currency printing numbers and change in rhetoric to ‘Digital India’ from ‘Clean India’ did not go unnoticed. GST might see the same. Make sure the honest are protected and valued rather than inconvenienced.
• Focus on the softer aspects too: GST has a significant softer change management aspect to it as well. Right from truck drivers carrying challans and paperwork to the CFO in office, they now need to behave differently. They need to reset their compliance timelines. They need to re-train internally to be compliant. Acknowledging that and rewarding (much like the cashback on using digital payments at petrol pumps in the re-monetization days) could apply the much needed soothing effect.

I truly feel GST is going to be a game-changer for India. And, Mr. Bachchan is right in exuding pride of ‘One Nation, One Tax’. But, if not implemented smoothly, the Opposition and other Government detractors would roast and feast on this. And while it might still be good for the nation (much like re-monetization; opinion is divided on this), it could come at a heavy political price for the Government (the nation might not forgive twice!).

Authored by (at the time of writing):

Madhur Singhal, Leader, Relentless Enablement and Implementation Practice

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