Many are of the opinion that the idea of GST being a “good and simple tax” is now lost in a labyrinth of rates, forms and compliances. Businesses have since the inception of GST been clamouring for simplification and manufacturing units, in particular, say they have been hit by complexities of the indirect tax. While manufacturing in the country is in trouble due to tepid demand and high cost of business, GST has thrown a spanner into the works.
Incidentally, the November data for GST also reveals a not-so-heartening trend of certain key states exhibiting a lacklustre growth. A slower single digit growth in some large states Haryana (2%), Punjab (3%), UP & MP (5%), Tamil Nadu (8%), Telangana (3%) as well the negative growth in Rajasthan (-1%), AP (-10%) and Chhattisgarh (-1%) warrants deliberation as these states have significant manufacturing activity.
Broader slowdown
In a booming economy, over compliance and arbitrary taxes can be an irritant, but when the economy is not doing well, it becomes a source of worry. So why is it important that we get the indirect taxes right, especially for manufacturing?
Atul Gupta, former partner, Deloitte India, and independent tax expert says that some of the economic activity has been impacted in big manufacturing states due to elections as well, besides the overall lower domestic consumption. “It is difficult to end the year even at 6% in GDP – lesser economic activity impacts GST itself, it has started to show with the November data being a proof in itself,” he says.
A look at the manufacturing numbers in November reveals further insights. India’s manufacturing sector had seen an 11-month low in activity in November due to rising costs and fewer orders, with the PMI reading at 56.5, survey findings showed.
Gupta adds that even the consumer FMCG sector has shown either low growth or hardly any growth, and such slowing down of spending has resulted in tepid collections. He is of the view that India is not at the forefront of technology manufacturing, which is necessary to make progress for its economic goals as a nation. “India has forever missed the manufacturing bus. How much can we catch up with traditional manufacturing? Such growth will be limited. We won’t be competing in the world for traditional manufacturing items. The only way to be current is to allow FDI in India,” he states.
Some examples of tech manufacturing include robotics, machine learning, Internet of Things, augmented reality and cloud computing.
Making it simple
Manmeet Kaur, Partner at Karanjawala & Co, agrees that the manufacturing and industrial sector have shown slower growth during the last few months, which may have resulted in weaker growth in revenue generation in the economy. “The lower numbers are conclusively indicative of slower economic growth. The October 2024 collections for states which showed a lower digit growth witnessed a significant increase in contrast with November 2024. This is likely because of the Diwali sales at the end of October compared to last year when Diwali was in the middle of November month,” she says.
To address the decline in GST collections, Manmeet adds, the state could strengthen the GST collection and filling mechanism. “Charging GST economically on certain goods and services may also have a positive impact on revenue collection since consumers are more likely to purchase such goods and services,” Manmeet highlights.
Experts suggest simplifying GST further as a step forward in improving GST collections. MS Mani, Partner, Deloitte India say that this will ultimately lead to increased tax revenues as more entities engage with the system. “It would help in ease of doing business which will propel economic growth. Enhancing the ease of doing business through GST simplification aligns with India’s projected GDP growth of 7%, as it removes barriers for entrepreneurs and fosters a more conducive environment for investment and expansion,” he states.
More MSME participation
Simplifying the GST framework is also crucial to encourage more MSME participation in the tax system, which will help in broadening the tax base and enhancing revenue collection. “More MSMEs will be inclined to take it up then. Right now, they must file a lot of returns, so many evade filing it as well,” Mani adds.
Affirming his views, Gupta states that it will serve well to look at a single rate which can increase collections. “We are still not packaging GST well enough in terms of simplifying the regime. In my view, they should remove every tax exemption and put a flat rate of 10%. This will help to collect more GST and the entire traction of evasion will be so low. Even for the MSME industry–if you put something as low as 10%–they will be inclined to file their returns and it will lead to collection of more GST,” he says.
Rishi Agrawal, CEO, TeamLease Regtech says that the government has to try and stay away from examples (like popcorn) so that GST can become omnipresent and acceptable. “It is a way to contribute to the economy. It has to be cognitively simplified so that all of one’s time is not utilised in taxation and the incumbent complexities go down. MSMEs, too, will not want to escape anymore as it will be simple. A Chartered Accountant should not be required for every filing or return – we need to stay simple and unambiguous,” he states.
Given that there are 63 million MSMEs contributing over 29% to India’s GDP, a boost in their participation is crucial to increase GST collections. Karanjawala & Co’s Kaur highlights that a better mechanism would be required for the purpose of incentivising MSMEs by ensuring a reduction of the financial burden through lowered GST rates. “Further, in a lot of small-scale businesses, there’s no separate division for accounting and complicated tax calculations pose an additional burden to proprietors. If a single quarterly return is introduced in this sector, the ease of doing business would increase and this would boost the economy,” she states.
The writing on the wall is clear – further simplification and a single tax rate is the way forward to usher in a wave of consistent change. It would widen the tax net, improve collections in low growth states, create more jobs and give the economy a much-needed boost.
