GST: Machinery ready to respond to initial difficulties, says Ashok Lavasa

Says, industry's response to goods and services tax is underestimated

Hours before the rollout of India’s biggest tax reform Finance Secretary Ashok Lavasa tells Dilasha Seth in an interview industry’s response to the goods and services tax is underestimated. Edited excerpts.

What is the level of excitement within the government about the GST?

Excitement is high and there is positive anticipation, considering the government has been working on this reform for the last decade. There is a great deal of satisfaction with what has been achieved and anticipation over how the GST will pan out.

But industry is jittery. Small businesses, in particular, are quite worried...

It is natural for people to be nervous. The nervousness could for several reasons. One could be associated with change. A second could be that it is a new system and there may not be a full understanding of how this system and the procedures will pan out. A third reason could be over handling technology; we will move away from a system that depended a lot on pen and paper.  Lastly, there could be nervousness among people who are not within the tax net because they belong to the informal sector or to a sector that is exempt. But the government has tried to address concerns of various sections.

What difficulties do you anticipate in the first month of the GST?

One of them relates to technology, the other relates to people adjusting to the new system. When such a major change is taking place, difficulties will arise. Not all of them can be anticipated, but we have the whole machinery ready to respond and I am sure the people will cooperate. These problems are transient.

Will the government need to rework budget numbers on account of the GST?

The effect of the GST has can be assessed after a couple of months. That will be the time when revised estimates will have to be prepared. Having said that, budget revenues do not only come from the GST, there are many other sources and they are not affected by this. We feel the GST will have a salutary effect on the economy; when general economic activities accelerate, there will be greater buoyancy as far as revenues of the government are concerned.

Could a shortfall in the cess collected to compensate states affect your arithmetic?

Since the Centre is committed to compensation for five years, a ring-fenced pool is being created for compensating states. In case of a shortfall in a particular year, as you are anticipating, the GST Council will have to take a view. The council will have to say that next year we can collect more so the compensation can be made. The council can consider changing the rate of the cess.

With a slew of cesses like the Swachh Bharat cess and the infrastructure cess being subsumed in the GST, will allocations to the ministries concerned for these activities affect budget calculations?

These ministries will continue to receive money. We have made allocations for various schemes, those allocations have not been altered. Whether it comes from cess or some other source is something that the budget will look at. The allocations are not changing.

The GST and a possible change in the financial year. Are these not too much reform for industry to absorb in a short span?

I think we are underestimating the capabilities of our industry. Many years of preparation have gone into the GST.

And the change in the financial year...

The government has not said anything on that. It is under consideration.

Jammu and Kashmir will miss the July 1 GST rollout. How soon do you expect it to come on board?

There is a good possibility that the state government will understand the benefits of the GST, explain them to traders, and take a decision in benefit of traders.

What is your take on the Congress, Trinamool Congress and the Left parties boycotting the midnight rollout of the GST?

The GST Council represents the collective will of the representatives of the Centre and the states. When such an institution takes a decision, it has a certain collective will about it. There is no reason why a particular state should not accept it.

Do you expect the GST to be inflationary in the initial months? When do you expect the transition to stabilise?

It could be inflationary but the impact is unlikely to be so great that one has to make an assessment. There will be sectors where the incidence of tax will go up and equally others where incidence will go down. We will need to look at an overall impact.

What effects do you foresee in the first year of GST implementation?

In all assessments that have been made there is a common thread, that it is going to have a positive impact on the economy. To what extent is a matter of conjecture.