GST reform starting to look like an Indian wedding
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India stands on the brink of one of its most momentous policy reforms in decades unprepared and uncertain. We’re just a few days away from the launch of a new indirect-tax regime, the goods-and-services tax, or GST, and anxiety about its rollout is all-pervasive.
The reform, which intends to knit India together into a single tax area for the first time, goes live on 1 July—in fact, at the stroke of midnight. The Narendra Modi-led central government, always on the lookout for a bit of spectacle with which to entertain its voters, intends this to be commemorated with a midnight session of Parliament, deliberately echoing India’s freedom at midnight more than seven decades ago.
Perhaps, though, the government should be thinking more about preparation and less about pageantry. The scale of the changes needed is daunting. India’s banks, for example, have been caught by surprise. They expected that the new regime meant no change to the current system in which they register as taxpayers once, nationally; instead, they’re being forced to register in each of India’s dozens of states. Now they’re rushing against the clock to do so.
Also read: All you need to know about GST
Smaller companies have been hit equally hard. The existing system allows them to maintain big, dusty ledgers and receipts, and all the paraphernalia of 19th-century accounting. The GST, on the other hand, is entirely online. Mom-and-pop outfits across the country are spending hard-earned money on computer hardware they’re not certain about, and struggling to learn how to use buggy tax software for the first time. Companies such as Dell Inc. have even set up websites where they tout their existing computers as being special “GST ready” models.
This sort of frantic preparation is visible in sector upon sector. It’s not surprising, therefore, that appeals are coming in from everywhere to postpone the GST by a quarter. Industry associations, state governments, chartered accountants, and even central government ministries have begged for a little more time.
Yet the government insists that no extra time is available, or even necessary. Finance minister Arun Jaitley said, with a touch of impatience, that “we don’t have the luxury of time,” and advised people to ignore the generally querulous atmosphere surrounding the rollout. In particular, he insisted the massive computing backbone needed for the task is ready, although it hasn’t really been stress-tested yet. About 80% of existing taxpayers have managed to open an account on the new system, but complaints have been common. Internet forums usually dedicated to figuring out which sub-clauses of the Income Tax Act can safely be ignored are now overrun with posts complaining of the dread phrase: “Failed to establish connection to the server.”
In any case, even if the server does’t fail, and everyone buys a computer and learns to use it in time, there’s still likely to be a quarter or two of utter confusion as the new tax takes effect. That’s adding to pessimism about growth over the rest of the year—especially since an investment crisis and Modi’s mismanagement have already pushed the economy into a slowdown.
Given all this, the government is taking quite a risk in refusing to postpone the introduction. Remember the glitchy rollout of healthcare.gov in the US? Opinions about an entire policy can solidify in the first few days of its implementation—and a bad IT experience can disproportionately influence such opinions.
My head tells me, therefore, that it would be best to push back the rollout while the system is stress-tested, open consultations are held on reducing adaptation costs and so on. But I have to admit my heart doesn’t agree: It’s quite exhilarating to see the government, which has a track record of timidity on major reform, for once showing a bit of determination.
And I can’t help being a bit hopeful as well. Perhaps a lot of the complaints are just people letting off steam. Jaitley pointed out that people have had a year to prepare, since the 1 July deadline has been known at least that long. (True, but the tax itself was only given its final shape a few weeks ago.) He could’ve argued with some justice that even if he gave in, then—India being what it is—people might well appear as unprepared in the last week before any later launch date as well.
As many people have argued, if you want to really get how this country works, observe people planning an Indian wedding—or watch Mira Nair’s great movie about it. Nothing seems to be coming together until the last moment, but it all hangs together in the end. Let’s hope that the GST rollout is just suffering from the Indian wedding syndrome. Bloomberg View