GST Not To Be Inflationary, Says Hasmukh Adhia

With the GST rollout now only a matter of time, the Modi government is engaged, in a war-footing, on laying down the infrastructure, with Union Revenue Secretary, Dr Hasmukh Adhia, touring the country, meeting all the stakeholders and allaying apprehensions, if any. In an exclusive interview with BW Businessworld’s Suman K Jha, Adhia answers a range of questions on GST, and says there’s no reason to believe that GST will stoke inflation.

Excerpts:

What is the government roadmap for the July 1 rollout of GST?
Most of the things are done now. The only thing which remains is the dissemination of information to the trade and industry, which we are doing now. We will be fully focusing on that till July 1. Also, there are small issues of connectivity -- last mile connectivity, which we are addressing now.

Everyone has been talking about the teething troubles as you roll out the GST. How is the government prepared to deal with the glitches?
Yes, we are prepared. There will always be teething troubles. We do visualize there will be some short term pain but we are prepared for it.

Many businesses and associations have been saying that October 1 would have been more appropriate. It would have given them adequate time to prepare…
But I think it is doable. July 1 is doable and we are ready for it. Government has gone an extra mile and made it possible and now the industry has got the coming months, and I think this period is good enough to be ready. So we should try and do it, by July 1.

Will GST be inflationary in the short run? Will it stoke food inflation even as it will boost GDP in the long run?
I don’t think that should happen. The first thing is that if we exempt all the food grains and absolute essential items for people from GST, there is no reason why GST should be inflationary.

Secondly, when we are going to remove cascading of taxation and we are going to make available the input text credit through and through, then the burden of taxation on most commodities will come down. So it is not likely to cause inflation but still we will take special care of the 300 commodities’ basket that comprise CPI.

It’s being said that the new tax regime is heavily loaded against country’s small and medium enterprises.
It’s no really so. Main numbers of enterprises are there in trading in the country. The good thing happening with GST is that earlier a dealer more than with Rs 10 lakh turnover per annum had to pay VAT. Now we are saying it is up to Rs 20 lakh. So the number of people between Rs 10-20 lakh turnover are 30-40 lakh in the country -- those dealers won’t have to register themselves. Compliance burden is very less.

Secondly, we have a composite scheme for traders with less than Rs 50 lakh turnover in which they only have to pay 1 per cent tax of total turnover. If you are a manufacturer (MSME), you just have to pay 2 per cent of total. If you own a restaurant, with up to Rs 50 lakh annual turnover, you have to pay 5 per cent on total turnover. The procedure of filing return will be quarterly.

In rural India, 14 out of 100 traders have broadband connection, how will small traders do GST transactions?
We only need reasonably good Internet connectivity for this, that also once a month. If they keep their sales purchase record, in a particular format, and take the device to a place where connectivity is available like a cyber cafe and upload it on the GSTN website. There will be various GST assistants working everywhere. This is also a good employment opportunity for GST preparers.

We will also have “suvidha kendras” (convenience centres) in districts with poor internet connectivity; they can go there to upload it. They can also go to district sales tax office, and upload.

There is the GST portal created by GSTN. Out of the 75 lakh registrants, 65 lakh are likely to be small and medium registrants who will upload their returns and pay duty using the offline utility created by GSTN. Is that a challenge?
Not at all. Create entire data offline, and connect at one go. That is a “suvidha” (convenience).

This will not cause any problem to small registrants, the only problem is earlier they used to choose to reveal only certain transactions. Now, that will not be possible. There will be an end-to-end matching.

You are visiting various parts of the country like the North East etc. Do you think there should be a GST secretariat in each state which can bring together Centre and state officials in an institutionalized form?
We don’t have a GST secretariat in every state, but we have created a mechanism of coordination at the state level. The commissioner of excise and service tax and the commissioner of state VAT, they are all working together now. They are sitting together taking all the decisions together. It is a coordination forum. We will ask them to meet more often, as required. That is our secretariat, in a way.

A large chunk of economy, including real estate, electricity, petroleum, alcohol are out of GST. Should the GST council bring the excluded items under GST?
Ideally, we should. It’s a kind of compromise because the states are not very comfortable in sacrificing their petroleum incomes.

Petroleum and alcohol give states a revenue base which they don’t want to compromise now. They don’t want to compromise their revenue base.

They will wait and see. If GST is giving them more buoyancy than expected, they would be comfortable in asking to bring these items under GST. But as of now, no.

Some experts say there is a case for bringing in a large number of goods which are in the 28 per cent category to 18 per cent as these are not luxury goods.
That’s a call GST council will have to take. Lot of people will make representation.

Some people are seeing it as an opportunity to convert their very high incidence of tax into very low incidence of tax. The basic decision council has taken is to bring them closer to the rate they are into now. Subsequently we can always reduce, if there’s a need to.

Is there a case for capping the rate at 18 per cent and eventually converging all other rates to 18 per cent?
It is not possible. It is going to be a highly regressive taxation. Today in the VAT etc, 30 per cent of income is coming from items in which the total incidence of excise and VAT is more than 28 per cent. These are all luxury items. If we bring them down to 18 per cent, that revenue loss will have to be made good by increasing tax from 5 per cent to 18 per cent, in case of essential goods. Is it good for the poor people? It’s not!

Initially we will have to live with this multiple rate structure. Once the revenue bases increases, we can slowly try to bring it down to a single rate.

Have you been meeting with the industry more to prepare them for this landmark decision?
We would like to do that more often. Next few months, our focus is to meet people and get first hand idea of the implementation challenges.

How many people have been trained throughout the country?
52,000 officers have been trained for GST and similar number is now being trained for IT also.

There have been apprehensions raised about GSTN.
There are no reasons to have apprehensions. It’s a well thought out decision of the previous government in 2013. GSTN was set up as a no-profit company. We have complete strategic control of the government, in a way, on GSTN. So nobody should doubt the structure of GSTN.

suman@businessworld.in
@skjsumankjha