India's GST bottlenecks are a pain for businesses

A board advertising Goods and Service Tax (GST) in front of the Central Goods and Service Tax office in Bangalore. India on Saturday reduced GST on 50 goods. AFP

Rahul Agarwal, the executive director of Wealth Discovery, talks about the progress made under GST one year on from the launch of the sales tax across India

What have been the main problems and challenges of GST?

Although, the GST negotiations dragged on for 10 years, it seems that the roll out was not well thought out. A lot of focus now needs to be given to education and awareness, especially to the small businesses. The GST regime has imposed additional costs on small business. Digital literacy and overall lack of knowledge of finance and accounting processes have forced these SMEs and smaller entrepreneurs to take services of professionals.

How else has GST affected small businesses?

Small-scale artisans have to come to terms with the MRP (maximum retail price), which is often hard for them to assign to their products, although, these enterprises are exempt from paying GST but when interacting with their clients they have to often show the proof of being GST exempt. This in turn impacts the way these entrepreneurs conduct their business.

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What are the main advantages?

The biggest advantage that the GST regime has ushered in is the formalisation of the informal sector into the mainstream economy.  As more and more businesses go mainstream, the tax base would widen and the government would have more funds to carry out schemes for the benefit of the general public.

Has GST made some processes easier?

GST has been able to create a single national market and has facilitated the movement of goods across state boundaries. Border check posts have been dismantled and the long queues at the checkpoints have virtually disappeared. This has led to the reduction of transactional costs and has accelerated the business cycles.

What should the government do to improve the system?

The government needs to remove the procedural bottlenecks, make the registration process less cumbersome and spread overall awareness about the various aspects of the GST framework. On the policy front, the government should aim for bringing more products under the GST framework and look at the inclusion of controversial items such as alcohol, real estate, and petroleum products through consensus.

How will GST impact the economy going forwards?

GST will ultimately lead to the formalisation of the Indian economy with significant number of small and medium enterprises joining the mainstream. These would lead to the increase in the size of the economy and would help these individuals and organisations gain access to formal channels of credit, which they were otherwise deprived of, leading them to expand their businesses that would create employment opportunities for the ever expanding young workforce of India.