First demonetisation and now GST: Govt likely to face thousands of litigations
Litigations, litigations and more litigations. The government, led by Prime Minister Narendra Modi and guided by Finance Minister Arun Jaitley, is all set to get caught in a number of litigations in the coming days, as a whopping Rs 65,000 crore of the Rs 95,000 crore collected as Goods & Services Tax (GST) in July has been claimed back as transitional credit by taxpayers.
Under the GST regime, which came into effect on 1 July, traders are allowed tax credit on stock purchased during the previous tax regime.
According to media reports, “The tax authorities are now scrutinising all such cases where the sum exceeds Rs 1 crore.”
The current situation is not only embarrassing, it also puts a big question mark over the government's preparation before undertaking such a big overhaul of India's tax regime. Especially in the backdrop of the collapse of the GST network infrastructure, which is unlikely to be fixed anytime soon.
The government is trying to find solace in the hope that a lot of credit claims may have been made by mistake. But to conclude that people have made mistakes to the tune of Rs 65,000 crore would be living in a fool's paradise.
What it suggests is that the government is unwilling to accept that it was completely unprepared for the implementation of GST. Many of its calculations with regards to future tax receipts, transitional credit claims and the capacity of GST to take the load of the whole country's taxpayers were absolutely off the mark.
Mistake after mistake
In November 2016, the government announced demonetisation of 86% of the currency in circulation in the hope of hurting black money hoarders. What panned out over the next two months was harassment of crores of Indians, including, daily wagers, farmers, SME workers, small traders as well as big industry. There was a cash crunch in the economy and it brought down GDP growth in two consecutive quarters.
But much against the government's hopes of extinguishing the black money by the way of non-return of the unaccounted for cash, the RBI received 99% of the cash back from the people. In order to defend the decision to demonetise the economy, Finance Minister Arun Jaitley had to give contradictory arguments.
First among the arguments was that demonetisation was not about identifying black money, but to make the economy go digital by forcing people to use digital payment methods, which was achieved post demonetisation.
The second argument, a dangerous one and contradictory to the first, was that not all money that has been deposited in the banks is white.
What Jaitley inferred from the second argument was that lakhs of people will be facing government notices in the coming days to explain the source of their deposits.
On similar lines, those who have made transitional credit claims now face the threat of the harassment by tax officials in the coming weeks. In short, if you made a claim of over Rs 1 crore on your pre-GST stock, the tax official is likely to tell you that "revise your claim downward or face litigation."
Traders community up in arms
Even as lakhs of small traders have been opposing the government's move to implement GST at a short notice and without proper arrangement, their patience is reaching its zenith after facing problems even two months of the one-nation-one-tax regime.
According to Asian Age, Confederation of All India Traders (CAIT) has convened a two-day national meeting on 18-19 September in Surat that will be attended by over 100 trade leaders.
“While chalking out the future course of action, the possibility of a national agitation on GST can not be ruled out as it is the core agenda of the meeting,” reported the newspaper.
CAIT boasts of representing over 40,000 trade associations representing over 6 crore small businesses.
What happens to the economy?
Demonetisation has already given a big blow to the Indian economy. Instead of growing at above 8%, India's GDP is now growing at less then 6%.
Unless the government fixes all that has been set wrong in the GST implementation, there is going to be a serious dent in the economic activity in the country which may lead to fall in government's indirect tax receipts. The traders and those associated with them must keep their fingers crossed, as Modi and Jaitley figure a way out of the mess created by them.