The Slowdown and GST - One Micro Version
Dinesh Kumar Kapila
This is rather interesting. I have just been asking around and mostly the small timers, not the small shop keepers but the guys who would have a turnover in the crores range but below Rs 10 crore maximum. Just to know what they say, this is not a study. I just picked up what many such businessmen say, over a period of time.
As one worthy explained, with a lot of tired looks (must be his daily talk show with friends) Earlier if you paid tax upfront for say a truck load of cargo, the tax paid upfront would be normally around 4 %. Now the tax as regards GST, if taken as an average of 12 %, means that much more cash is paid upfront while the stock, say a truck load, would be sold over the next three months to four months. The natural course to adopt for many traders / stockists was to scale down orders and in any case minimise over stocking. The trucker, used to loading up a truck for one customer, now finds himself having downtime as waits for multiple orders to load up. That also increases his costs. So overall the two factors, acting in separate ways, but linked up as described, lead to reduced orders for manufacturing in some cases. A cascading effect slowly builds up and takes time to play out in a complex economy like ours.
in small towns or even major cities (exclude metros and mini metros), an order for say 200 fans would be placed with alacrity earlier but now such instances have slowed down. We can actually say a real shift in the way these businesses operate is underway, but the changeover process comes with a price. Alongside, major consumer product manufacturers are building direct links with retailers, the consequent loss at major wholesalers is being reflected in employees being let off or a reduced level of business and revenue for the Government. Most of these businessmen say the concept of GST itself is not incorrect, but the time taken to adjust and reorient is a painful period.
Now another group I met said the multiple rates and interpretations caused disruptions too, mainly due to lack of clarity. An interesting sidelight, if you buy seeds for agricultural operations, it does not attract GST, but how to certify this, the other alternative for the businessman i met was to simply pay the tax and bear the cost. Then some States levy mandi tax in addition, for agricultural trade, this adds to the cost. Strangely, wooden furniture is charged a reduced rate on GST as against steel while this is actually more damaging to the environment. But then the rate of GST on wooden furniture also goes up with value addition. At some inflection point, the higher slabs begin to bite and consumption or demand slows. Taxing an infrastructural staple such as cement at the highest slab had also led to a marked slow down in the real estate / construction sector. Add to it the Bank Guarantee fees is costlier substantially, from around 2 % to around 10 % now, thus adding to costs and blocking cash for around 90 days.Some businessmen I met also said that multiple rates on similar products but with some product modifications led to problems in interpretation as also discretion at the compliance and inspection level. This had its own complications and costs. Plus if your business is at a level where filing of returns for PF, ESIC, GST etc is your own work, any complication at times leads to a sort of mental roadblock, Its a age related issue too in some cases.
One worthy I met told me the CAs had the upper hand now but informed (i dont know for a fact) that many CAs stated they were under limitations as to the number of clients they could certify, thus being constrained to hire more CAs, this adds to the cost and led to higher fees. Another angle is that due to cash flow constraints, the perishables market is deeply impacted while non perishables market is stagnant (they feed off each other). Overall, it impacts rather adversely.
Then there is the issue of input tax credit, both parties to the transaction have to file the return carefully, a difference (by mistake) of even a digit is enough to get a rejection. It takes time for a community of such businessmen to adapt and change over. Then the CAs are fewer in number in smaller towns and some among them also view mundane data based assignments with dis-favour. There are still the obstinate businessmen around, hoping for more dilution of rules and processes and holding out. Many had in pre GST Times barely paid their taxes and their margins do not seem to have accounted for outgo on taxes. Now as the net of GST expands, some of this segment view it as an attack on the viability of their business. The adjustment to squeezed and reasonable margins will take time. I can state their lifestyle and consumer behaviour reflects a much higher income than what presumably income tax returns would indicate. The changeover is impacting this segment particularly. I am not saying all are involved, just a segment. Then cash based transactions are still preferred by many reasonably well traders including jewellers but to account for and file tax returns and compliance, cash is at times viewed with suspicion.
Not only were businesses slowing down, but alongside consumption patterns were also slowing down. Or reserved for flashing money in Europe or wherever, where the tax man could not track them. Jewellers, as per many businessmen from other segments, were more into this, as were real estate businessmen. But this could be anecdotal. And jealousy.
Most businessmen do not criticise, they acknowledge the need to improve compliance but do crib about the impact on their own businesses. Overall the sum total is an economic slow down as individual businessmen scale down while adjusting to the new tax processes. The consensus across many such businessmen is to remain in cash for now, to tide over the period of stagnation and changeover. Then as the economy recovers, the situation would improve by say , mid 2020 or maximum by 2021, so goes the common refrain.
Dinesh Kumar Kapila
This is rather interesting. I have just been asking around and mostly the small timers, not the small shop keepers but the guys who would have a turnover in the crores range but below Rs 10 crore maximum. Just to know what they say, this is not a study. I just picked up what many such businessmen say, over a period of time.
As one worthy explained, with a lot of tired looks (must be his daily talk show with friends) Earlier if you paid tax upfront for say a truck load of cargo, the tax paid upfront would be normally around 4 %. Now the tax as regards GST, if taken as an average of 12 %, means that much more cash is paid upfront while the stock, say a truck load, would be sold over the next three months to four months. The natural course to adopt for many traders / stockists was to scale down orders and in any case minimise over stocking. The trucker, used to loading up a truck for one customer, now finds himself having downtime as waits for multiple orders to load up. That also increases his costs. So overall the two factors, acting in separate ways, but linked up as described, lead to reduced orders for manufacturing in some cases. A cascading effect slowly builds up and takes time to play out in a complex economy like ours.
in small towns or even major cities (exclude metros and mini metros), an order for say 200 fans would be placed with alacrity earlier but now such instances have slowed down. We can actually say a real shift in the way these businesses operate is underway, but the changeover process comes with a price. Alongside, major consumer product manufacturers are building direct links with retailers, the consequent loss at major wholesalers is being reflected in employees being let off or a reduced level of business and revenue for the Government. Most of these businessmen say the concept of GST itself is not incorrect, but the time taken to adjust and reorient is a painful period.
Now another group I met said the multiple rates and interpretations caused disruptions too, mainly due to lack of clarity. An interesting sidelight, if you buy seeds for agricultural operations, it does not attract GST, but how to certify this, the other alternative for the businessman i met was to simply pay the tax and bear the cost. Then some States levy mandi tax in addition, for agricultural trade, this adds to the cost. Strangely, wooden furniture is charged a reduced rate on GST as against steel while this is actually more damaging to the environment. But then the rate of GST on wooden furniture also goes up with value addition. At some inflection point, the higher slabs begin to bite and consumption or demand slows. Taxing an infrastructural staple such as cement at the highest slab had also led to a marked slow down in the real estate / construction sector. Add to it the Bank Guarantee fees is costlier substantially, from around 2 % to around 10 % now, thus adding to costs and blocking cash for around 90 days.Some businessmen I met also said that multiple rates on similar products but with some product modifications led to problems in interpretation as also discretion at the compliance and inspection level. This had its own complications and costs. Plus if your business is at a level where filing of returns for PF, ESIC, GST etc is your own work, any complication at times leads to a sort of mental roadblock, Its a age related issue too in some cases.
One worthy I met told me the CAs had the upper hand now but informed (i dont know for a fact) that many CAs stated they were under limitations as to the number of clients they could certify, thus being constrained to hire more CAs, this adds to the cost and led to higher fees. Another angle is that due to cash flow constraints, the perishables market is deeply impacted while non perishables market is stagnant (they feed off each other). Overall, it impacts rather adversely.
Then there is the issue of input tax credit, both parties to the transaction have to file the return carefully, a difference (by mistake) of even a digit is enough to get a rejection. It takes time for a community of such businessmen to adapt and change over. Then the CAs are fewer in number in smaller towns and some among them also view mundane data based assignments with dis-favour. There are still the obstinate businessmen around, hoping for more dilution of rules and processes and holding out. Many had in pre GST Times barely paid their taxes and their margins do not seem to have accounted for outgo on taxes. Now as the net of GST expands, some of this segment view it as an attack on the viability of their business. The adjustment to squeezed and reasonable margins will take time. I can state their lifestyle and consumer behaviour reflects a much higher income than what presumably income tax returns would indicate. The changeover is impacting this segment particularly. I am not saying all are involved, just a segment. Then cash based transactions are still preferred by many reasonably well traders including jewellers but to account for and file tax returns and compliance, cash is at times viewed with suspicion.
Not only were businesses slowing down, but alongside consumption patterns were also slowing down. Or reserved for flashing money in Europe or wherever, where the tax man could not track them. Jewellers, as per many businessmen from other segments, were more into this, as were real estate businessmen. But this could be anecdotal. And jealousy.
Most businessmen do not criticise, they acknowledge the need to improve compliance but do crib about the impact on their own businesses. Overall the sum total is an economic slow down as individual businessmen scale down while adjusting to the new tax processes. The consensus across many such businessmen is to remain in cash for now, to tide over the period of stagnation and changeover. Then as the economy recovers, the situation would improve by say , mid 2020 or maximum by 2021, so goes the common refrain.
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