Wrong way

A key promise of the goods and services tax (GST) regime, which was put in place on July 1, was to promote efficiency, and reduce tax terrorism and inspector raj. Prime Minister Narendra Modi, in fact, introduced the GST as a “good and simple tax”, which would boost ease of doing business. A key component of this ease and efficiency was to be the freedom from routine border checks that truckers ferrying goods across the country faced. Mr Modi had also said that the GST’s introduction and the consequent abolition of inter-state check posts had reduced the time taken for the movement of goods by 30 per cent, and resulted in saving thousands of crores of rupees. However, one of the proposed features of the GST regime — the e-way bill, which allows the tax authorities to electronically track movements of goods — was long seen by businesses as a spoiler.

Given the widespread disruption faced by producers after the GST, the policymakers stayed away from giving a final nod to the bill. However, that changed over the weekend as the GST Council decided that this measure would come into effect across India from June 1, 2018 (including intra-state transportation). In fact, the tabs on the inter-state movement of goods would start sooner. The GST Council decided to advance the original date of April 1 to February 1 to ensure that all goods worth over Rs 50,000 are pre-registered online before they are moved for sale beyond 10 km. But, since the e-way system will be ready for roll-out on a trial basis only by January 16, traders and transporters can start using it voluntarily. Presumably, this would allow businesses to be better prepared by the time the official deadline become functional.

The way the e-way bill works is that if a company wants to move goods worth more than Rs 50,000 under the GST, it has to get an online registration of the consignment and secure the bill that tax officials can inspect anytime during the transit. But the core of the GST is to have unrestricted movements of goods across the country and make one common market. This gets impeded if the system makes it difficult to move goods. This is the reason why a GST advisory committee has been arguing for deferring the e-way bill till at least 2019. But the GST Council apparently went ahead with the bill because of the sharp fall in revenue collections under the new indirect tax regime. In October, the GST collections slowed to their lowest level of Rs 83,346 crore. The government suspects that considerable tax evasion is taking place with little accountability on goods crossing state boundaries.

There is no doubt that implementing the e-way bill will be a risk. In October, Goa Chief Minister Manohar Parrikar had argued against the e-way system, claiming it could actually nullify the single tax regime. Many independent observers, too, agree that, notwithstanding the revenue concerns, an improper implementation of the e-way system will lead to a significant adverse impact on supply chains and dilute the GST’s lofty objective of “one nation, one tax”. The GST Council should have tried to find out other alternatives to plug the revenue leakage or at least restricted the use of e-way to some categories of goods, to begin with.

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