GST: Good and Simple Tax?

Small traders' in Karnataka differ

While in Surat textile traders kept their shutters down to protest against GST on fabrics, shops and hotels in Kerala took to streets to seek clarification on the new tax regime and in Karnataka, two weeks since the Goods and Services Tax (GST) came into force, confusion and disagreement reigns among the trading community. Traders have also reported what they hope is a temporary drop in sales Krithika Krishnamurthy (Twitter: BK_krithika) checks on the aftermath of this Good and Simple Tax (GST)

The number of shoppers visiting Chikpete, one of the busiest commercial hubs in Bengaluru, has plummeted drastically.

“My business is down by 50%,” said Sanjay Jain, a dealer in packaging items. His daily revenue has slumped from Rs 20,000 to around Rs 8,000-10,000. He blames it on the GST of up to 18% on goods sold by wholesaler Sha Misrimal& Sons instead of the 5.5% tax pre-GST.

GST was rolled out on the midnight on June 30-July 1. A fortnight later, there are happy camps and the not-so happy camps. The unhappy outnumber the happy.

Small traders – who run businesses in specific verticals such as plywood and electrical appliances – are a disappointed lot. Deep within the labyrinths of Chickpete, a wholesale market called Ragipet emerges. Here, a large banner protesting the GST has been strung up.

The Karnataka Hardware & Allied Merchants Association, which put up the banner, said it has made representations to the governor on GST and the Karnataka Minister of Agriculture Krishna Byregowda.

“The authorities said not much will change,” said Srivathsav, who runs the Sri Ganapathi Hardware in Ragipet and is a member of the association.

A tax jump from 5.5% to 12% on lenses and frames means Amjad (name changed) has a lot of explaining to do to his customers. Earlier, he gave 20% discount, now he can barely manage 10%. “Optical items have become expensive,” he said.

90% of the food-grain merchants have removed trademarks from goods, said the Federation of Karnataka Chambers of Commerce and Industry (FKCCI).

That is because brands attract a 5% tax, said FKCCI. “Also, when collecting a 5% tax from the consumer, you don’t want to be noticed by the government in terms of revenue and everything,” said FKCCI president K Ravi.

“Glass, electric appliances plywood and sanitary ware, upto 28% tax on all these is too much,” said Prakash Mandoth, founder of Jayanagar Traders’ Association.

Vaibhav Enterprises which deals in glass and plywood has also been hit by GST. Owner Munna said, “A customer comes. Orders something. Gawks at the 28% tax rate. Runs away.” The pre-GST tax that he once charged: 5.5%.

The same drama plays out at electric appliance stores. Stoves are taxed at 28%, up from 18.5%.

Shilpa Singh, a homemaker who set out to buy a mixer-grinder has deferred her dream purchase after learning about GST. "Might as well wait for the discount sale during the Ganesha festival,” she said.

Supermarkets on the other hand, have begun to update the tax rate on the 3000-odd products they sell ranging from a hairbrush to groceries.

“Only 50% of the work has been done. We are not charging more from customers, just 1 or 2 rupees extra on some items,” said Tahir, an employee of EK Retail in Bannerghatta. The updated MRPs in supermarket, include the GST tax.

Basavarajakumari, a retired school teacher, said she was largely left unaffected by price rise due to GST. "But tomato prices are up to Rs 75! Sellers say it's GST. Whoever heard of GST on vegetables?"

Why are tax rates as they are?

GST subsumes about eight central government taxes and eight state taxes into one. The GST council then identified four tax buckets to put all items under: 5%, 12%, 18% and 28%.

If the total tax incurred on the item incurred was 27%, GST would fall in the 28% category. If it was 12%, it would remain in the 12% bucket.

“But in some of the items, this concept was not applied and GST is much lower or much higher than the earlier tax rates,” said Prashant Sakleshpur, managing director of Envizen, a Bengaluru-based tax and accounting consultancy firm.

Hence the dissatisfaction among traders. But believing that GST's goal is to decrease prices is short-sighted, said industry bodies. The real intent is something else.

The intent behind GST

Over a decade in the making, GST has been pushed by most ruling parties, for two reasons. One, it brings more businesses into the tax net. Two, it makes doing business easier.

It accomplishes the first, by giving an identity in the form of a GST number to wholesalers, distributors and retailers. It then lays the bait of tax credit, a monetary benefit that one business can claim from the other.

Given that businesses need to work and claim credit from one another, a cyclical reaction is set off. One cannot claim a tax credit without a GST number. So, one will find fewer people to do business with, without a GST number. Under pressure, businesses will start to abide by GST.

“For the unorganised sector, it will be difficult,” said T S Umashankar, general secretary of Karnataka Small Scale Industries Association (KASSIA). “Everything will now become white and prices will become competitive.”

The second goal of GST is to ease the process of doing business. Till July 1, businesses had to file taxes on three different online portals: One for excise tax, one for service tax and one for VAT. Now, the GST portal is the only one.

“The truth is, prices will more or less remain the same. Compliance will become very easy,” said Sakleshpur of Envizen Consulting.

Way forward: Education and Awareness

Ravi of FKCCI recounted an incident when a caterer gave his office a bill of Rs 15,000. He had neither charged GST nor VAT. Ravi could only guess why.

“He’s either making less than Rs 20 lakh or he has not registered. Or, he might be ignorant,” Ravi said.

Most shopkeepers in Chikpete were aware of the new tax regime and were getting GST ready but those on the fringes of Bengaluru were yet to get their GST number, and were issuing bills in the old format.

Which is why state-wide campaigns are afoot to educate people on GST. FKCCI said it has done about 150 awareness programmes (so far). The Jayanagar Traders Association has carried out over a dozen training programmes. KASSIA said it continues to get requests to conduct awareness campaigns from all across the state.

The game of wait and watch begins

Ramesh Jarikoli, Minister of Small-Scale Industries, said he was yet to study the impact of GST in Karnataka. Nobody from the Department of Commercial Tax was available for comment. Traders said it will take at least a month to assess impact of GST on their businesses. Several traders have ordered GST compliant bill books and are depending on auditors to convert them to digital. Making an investment on technology is not on top of their mind.

“Change has happened. We will yell about it but just like demonetization we will learn to adapt,” said optometrist Amjad. “Will there be a benefit at the end of it? We have to see.”

Disclaimer: The opinions expressed within this article are the personal opinions of the author. The facts and opinions appearing in the article do not reflect the views of and does not assume any responsibility or liability for the same.

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