GST implementation difficulties after Demonetisation

Mon, 5 Dec Pre-Open

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Amit Mitra, finance minister of West Bengal and the chairman of the empowered committee of state finance ministers, says it's not the right time to implement goods and services tax (GST), claiming India's federal structure may not be prepared for the 'double whammy' of demonetisation and GST.

Similarly, forecasts about the adverse impact of demonetisation on the economy have weakened the resolve of the government to push the GST related Bills in the ongoing winter session of Parliament.

Though the government has the option of skirting the opposition by getting the GST laws passed as money Bills, but that will also not be of much help. This is because the states then will ensure, that they don't get the required support from the assemblies, which is a must for the take-off of the GST.

Similarly, there are voices within the government as well advising discretion on GST roll-out by 1 April 2017. They have argued the new tax regime could prove to be a double whammy for trade, which is already looking at a slump in the near term because of the currency purge.

Think about this for a moment.

Companies are already facing pressure, especially in rural areas owing to severe cash crunch. Even in cities, people are rationing their money and postponing their purchases. This will certainly impact companies' growth and profitability over the next quarter or two. And just when dust of demonetisation settles, we have another challenge - the implementation of GST. The disruption and discontinuity would continue till the time the companies, distributors, suppliers, and other players in the value chain adjust.

Besides the inherent logistical and procedural difficulties in the already tight race against time to implement GST before 1 April 2017, there are more valid political and economic reasons for the government to go slow with the bill.

The impact of both these issues would be cascading and lasting for some time. It is no rocket science to understand that year one and year two of GST implementation would bring its own upheavals before the system settles and popular goods begin to percolate.

'One nation, one tax' was hailed as the single biggest economic reform bill since long time. But then a demonetisation of this magnitude had not happened in India before either and was bound to take its toll. While the actual gains/losses from demonetisation will take time to manifest, the GST seems to be its first casualty.

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