GST and its effect on us
by Uttara B S on 08 Oct 2017 9 Comments

Is GST good or bad? As a policy, one tax for one nation is obviously a good thing… so the policy is great. How it is implemented and what effect it has on various sections of people is what determines its ‘success’ or ‘failure’. In our case, the rate fixed for our products and the tiresome process of filing GST returns has completely shaken our faith in the Union Finance Ministry.


Our business is in the granite sector. We are a manufacturing company making granite items for indoors and outdoors with a wide range of products including benches, bird-baths, planters, wash basins, dispensers, plates and bowls. We manufacture these items from waste stone collected from monument units – so the cost of the raw granite for us is minimal. In fact, we obtain it at far lesser price than what the monument owners pay to dispose the waste stones!


When the GST rates were announced at the end of June 2017, we were dismayed to note that all granite items other than blocks were assigned the maximum GST rate at 28%. The existing VAT rate is 14.5%. The GST rate therefore becomes nearly twice the existing VAT rate! Moreover, inter-state GST is also 28% which is up from the very attractive 2% charged according to the erstwhile central sales tax rules. Added to that, our products particularly did not come under excise duty, so only the VAT rate applied to our products at 14.5%.


Granite manufacturers were naturally upset and there were several delegations to the Finance Ministry to consider lowering the rate to 18% at least. But to no avail yet. We are now in September. GST has been in effect for the last three months. We have had some sporadic sales and each time the same discussion ensues: Bill banaadu? Arre, nahi yaar, woh 28% kaun bharega?  Toh kya, aadha bill banaadu?...Chalo teekh hai…


This was happening during the VAT regime too, but not with our products. Now with this fabulous increase in GST, we, who believe in paying taxes, who want to keep our records straight, who do not want to complicate our dealings, have been forced to resort to such under invoicing of bills just so that we collect lesser tax from our customers. Is this right?


On deep thought, I think it is. And here is why.


India is a republic for, of, and by the people. For several decades, the past governments have tried to rationalize the tax structures and the idea of GST was mooted. But none of the previous governments had the guts to enforce it, knowing fully well that it will disrupt the markets and the economy and would potentially boomerang on them during elections. And so the economy was rolling along, downhill, until it came to Prime Minister Modi’s door to do something drastic to start the ball rolling for a reversal.


And Prime Minister Modi bit the bullet. He put his faith in the Finance Minister, Arun Jaitley, to work out the details. Until the tax rate (we thought it would be ‘One Tax for One Nation’ policy) was announced, everyone was upbeat or skeptical depending on their political leanings.


When five tax slabs were announced we were aghast. And when we saw that granite items attracted a particularly vicious rate of 28% GST our hearts sank. Seriously, instead of things getting better, they had just got worse. No, not worse, but absolutely worse. What could be worse than having to collect more than a quarter of the price of an item from a customer for products that are manufactured in a labour-intensive industry?


If the price of the product goes up, the customer is upset and will be discouraged to buy. So do we cut down on our margins so that the customer pays the same amount and is happy? Should we cut into our margins to pay the government instead?! Why would we want to do that? It does not make business sense! So what is the way out?


We request the government - ‘of the people’ incidentally - to reconsider lowering the tax slab. When there is no response and in the meanwhile we get orders, what are we supposed to do? We resort to under invoicing. This under invoicing starts right from the time granite is cut out from the mountains, by the way, although blocks attract 12% GST. I remember tweeting that the Finance Ministry is forcing us to follow illegal practices by levying such criminal rates for granite items. And that is what has come to pass. We have very few options unless the Finance Ministry sees sense and rolls back the rates.


Option one: Under invoice and show bills where we have collected 28% tax on half the price so that we pay lesser money as tax to the government. The government may know about this, but they have no legal documents [other than this write-up!] to show as evidence for any illegality.


Option two: Invoice with full amount but collect only 14.5% tax.  This will invite a penalty. So be it. We do not pay the penalty because we do not agree to this exorbitant tax rate, and so we face legal charges and spend some money going to court and cooling our heels in jail. Seriously, is this even a choice??!


So there is no choice. And the hiccups of filing returns on an overloaded and faulty GSTN has cost us 56% tax on an inter-state sale because the input credit facility surprisingly did not apply for us, even though the GST policy states that the inter-state GST for goods purchased in one state and sold in another should be an amount that is arrived after reducing the GST collected while purchasing.


This could be a glitch in the software… but we had to file for refund and it looks like many SMEs have faced this from the huge amount of refunds filed post-GST implementation. Money is locked up and that really slows down business!


And so, in summary, what the Finance Ministry has done is that it has spawned a whole new ecosystem that will indulge in under invoicing. The cash payments will again circulate as black money.


This is how black money started in the first place - to avoid the exorbitant taxes levied by the British. Remember Lagaan? Hum teen guna lagaan daalenge. So essentially what Arun Jaitley has done is just that, for our granite products. Do guna lagan daal diye aur kaala dhan ko punar janam diya.  Jai Ho!


The author is a post-graduate in life-science and has a diploma in journalism; has studied graphic design and helps in the family enterprise of manufacturing granite items. The views expressed are personal 

The article was written before the changes made in the GST on 6 October 2017

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