GST: Post teething troubles, there will be a wide smile

It has become a cliché to call the Goods and Services Tax a game-changer for the Indian economy. But clichés are clichés for a reason – which they often hold true. There is no doubt that GST will bring an overhaul in the Indian economy with simplified tax laws, greater compliance, accelerated growth and a boost to investor sentiment. However, the discourse, so far, has only revolved around the potential positive impacts of GST on the Indian economy without much discussion on how will this huge reform be implemented. With July 1 being the awaited date for GST roll-out, India is on the verge of making history as far as tax reforms go. Yet, the lack of clarity on implementation makes the horizon blurry, especially for the real estate sector which possesses great potential to contribute hugely to the Indian GDP. With such potential and promise, it is only relevant that the industry is equally prepared for the big transition. As they say, the devil or the god is in the detail – depending on what one is seeking.

The idea of a uniform tax regime is popular worldwide. With 160 countries following the regime, India has plenty of examples to learn from while implementing GST. The country can learn from others’ mistakes without having to make its own, and recreate success stories following the footsteps of other nations.


Lessons from the Land Down Under

Australia replaced its federal wholesale sales tax system and multiple state and territory government taxes, and levies with GST in July 2000. The move drew criticism on grounds of predictions of high inflation, recession, unemployment and severe dent to business environment. But the Australia government allay those fears by ensuring that the benefits of reduced prices due to abolition of multiple taxes reached the consumers. The country laid special emphasis on anti-profiteering measures to safeguard consumer interest. Owing to these concerted efforts, the accusations of inflation and blow to business environment did not hold water. According to an analysis conducted by the Australian Treasury Office, although GST caused changes in prices of many products, it was a one-off variation. The Australian economy experienced a slowdown for only around three months, and the reason was not just GST but many other factors at play including high interest rates, global oil prices, and the decline of public spending for the Sydney Olympics.

Three years after implementation, the Australian Treasury Office conducted a comprehensive analysis of the economic impact of TNTS, with special attention to the impact of the GST. The Australian Treasury concluded that the tax reforms did not cause any adverse impacts on the economy. The immediate effects including inflation and slow growth waded out over the next couple of years, disproving the fears of naysayers.


The Malaysian example

Malaysia is another case study on GST implementation that India can learn from immensely. The implementation of GST increased prices and earned the wrath of the citizens and industry. Despite efforts by the country’s Ministry of Domestic Trade, Cooperatives and Consumerism to administer prices, inflation could not be controlled. Though the government provided around six months of preparations and customer education, there was lack of clarity on the complex structure of the tax. India can learn endurance and efficient monitoring of prices from Australia while Malaysia teaches us to invest time and effort to be well-prepared for smooth transition and better implementation of the tax regime.


New World order

It is evident that the GST structure enjoys wide-spread popularity worldwide with 160 countries already following it and many others, including middle-eastern countries and China, being in the preparatory phase.

Patience and preparation are often rewarded, as history has come to prove. India needs to take heed of the lessons from other nations and bear in mind that initial hiccups may arise, but can be controlled. GST, has enjoyed bipartisan support for a very long time, and if implemented cautiously and efficiently, can prove to be highly propitious.

The concerted efforts of the states and the Centre, and the faith of the industry will ensure that the implementation of this major tax reform in India will overhaul the entire economic framework—for the better