Hasty GST rollout may see higher defaults by companies

The passage of the four goods and services tax (GST) Bills in the parliament has sent the Indian trade and industry into preparation mode for the July 1 deadline even as they brace themselves for pricing, cash flow, supply, compliance and others such pains due to a tight timeline, say leading tax consultants.  

Many of them believe the government is rushing into new indirect tax regime without meticulously planning or without giving ample time to the businesses and this could result in some suffering and chaos.

A tax expert went to the extent of saying that the unpreparedness of the government and industry could lead to supply disruption.

“Demonetization only affected payments. It did not affect the supply. Here, the entire supply of goods and services could get affected because if you (businesses) are not prepared, you may not get input tax credit in time. Your cash flow will get affected, which will, in turn, affect timely manufacturing of goods, and so you wouldn’t be able to supply to stores in time,” he said.

The tax consultant cautioned that if the GST “backfires”, it would be “terrible” for the country.

“The confidence that the government got from handling demonetization unprepared should not make them feel that they can go unprepared for GST also,” he warned.

Bipin Sapra, tax partner, EY, however, is very sure that supply will not get disrupted due to an earlier rollout date. The industry has been lobbying hard with the government for a postponement of the implementation date of GST to September 1.

“Theoretically, they (government) may be able to do it but practically some more time may be required. They came out with laws, rules will be out soon. They have to work on the administrative mechanism, training tax officials, etc. It’s a huge transformation from that perspective today. It’s a lot of work and I am not saying that it not possible – government is committed. They are trying to do it but it will take some time,” said Sapra.

He said with no clarity on the rates, manufacturers and services providers may face pricing challenges.  

“I do not see any challenge from the supply point of view for the industry. They may not know what pricing they may be able to offer,” he said.

He said a July 1 rollout of GST would be a “touch and go” for industry and feels that the government is better prepared than the businesses.

“At some point in the time, the industry is going to come back and say please give us more time. The government may be much better prepared,” said Sapra.

He said with the government keen to make GST live from July 1, the industry should speed up on its preparation.

The EY tax analyst, however, expects a “big chunk” of the indirect tax payers to default in the initial phase.

“There may be a big chunk which may default, which means that they may not have the system in place. They may have to put a plan B for their compliance,” he said.

Preeti Khurana, chief editor of Cleartax.com, said it could be a smooth transition for big corporates but small and medium enterprises may struggle to meet the deadline.