Thread by @shyamdotme

My experience as a small #entrepreneur with #GST

Let us agree on something nothing is perfect. And the current #GST is certainly not perfect but the pertinent question is if it worse than the indirect tax regime it replaced ?

To give context of how bad or good #GST is we have to look at what existed before.

There used to be the dreaded "General Sales Tax" (not GST), where the "dealer" had to renew their registration each year and all their business accounts had to shown to the department which incurred "curious" expenses, failing which let us say you aren't doing any "business"

"Returns" each month had to be filed *physically* which let us say wasn't a pleasant experience.

To avoid dealing with this cesspool most hired "professionals" to do the dirty work. Just "pay" the professionals & they will "handle" everything, and everything at a "cost".

And the cost depended on how honest you were, even if you were 100% honest there were still "costs", if you did ZERO business there were costs.

So when people say GST is costly they effin have no clue what "compliance" cost was during their rein of terror.

There was no concept of Input tax credit so there was no incentive for anyone to honestly show what was the actual business. There were massive under-reporting of sales which was evident from the fact that we have *INSIST* on getting the bill from pretty much most places.

Thankfully it was replaced by Value added tax or VAT which was a tremendous improvement. Introduced the concept of Input tax credit which means you get a credit of tax you paid on purchase which you could offset with the sales you are making and only pay for the value added.

A simple example, you purchased a garment for Rs. 100 from a whole-seller and you paid tax of Rs. 5. Now if you sold the Garment for Rs. 200 you will need to collect tax of Rs. 10 but the tax due will be Rs. 5 since you have a credit of Rs. 5.

This was a great incentive to insist of getting proper bill and honesty was incentivized. This was great but still there were issues.

Compliance was still cumbersome, in VAT a sale was a sale irrespective of whether it was to a registered dealer or a end consumer. And we have to every month submit a list of buyers.

Not an issue if you sell few hundred big ticket items but a major issue if you sell thousands of small items. People found a way to "manage" but if you were an honest person and wanted to do this the right way it was a big chore.

In #GST if you sell thousands of small ticket items to unregistered end user all you have to enter is the total sum. People whining about compliance complexity I would have loved see how they would have filed Annexure II in TNVAT.

In TNVAT these are the returns that needed to be filed online *EACH* month and then hard copies had to be submitted *PHYSICALLY* at your assessment Circle

Form I Acknowledgement
Form I
Payment Due
ANNEXURE I
ANNEXURE II
ANNEXURE III
ANNEXURE IV Input
ANNEXURE IV Export
ANNEXURE IA
ANNEXURE AV
CST (For interstate sale)

Now you had to file these irrespective if you had *ZERO* sales.

Now compare this to GST where the only real form you submit monthly is GSTR3B and GSTR1 quarterly.

If you have NILL return it is literally couple of click and DONE.

For a small retailer with turnover upto 1.5 crores (who is not under composition scheme who have to file **ONE** return annually) here is a aproximate count of forms they need to file in GST vs TNVAT each year excluding annual return

VAT = 96 (8 x 12)
GST = 16 (12 x 1 + 4)

Now let us come to the all good Input tax credit.

In VAT you can get get ITC but there were a lot of if and but.

Read here to get a sense of the complexity

taxguru.in/goods-and-serv…

For the most part you can get ITC for the goods you sell so if I am garment retailer I get ITC on the garments I purchase and sell within my state.

1) No credit is available in case of inter-state purchases

Now if I sell the garment out of state then I can't claim ITC and the person who purchased the goods won't get any ITC.

This is the reason why many would rather purchase from sellers within the state.

There was a concept of C-FORM for interstate sale let us say it was a ordeal. I would rather forgo the ITC than deal with c-form. Also the C-FORM was between registered sellers of 2 states.

In case we were selling to a end consumer via e-Commerce then we lose the ITC.

Which meant that all interstate e-Commerce during VAT to end-user was costlier since the sellers lose ITC.

Then there were states like West Bengal where you can't sell products to even an individual without a special form.

community.ebay.in/t5/Buying-on-e…

This meant for the longest time sellers in e-Commerce like eBay didn't sell to people in West Bengal

Now people found a way to bypass or took risk and sold anyway

Imagine that it was easier to sell a product from India to another country like USA than to a State within India.

Now in GST there is no such restriction I can sell to a person in Haldia as easily as Hyderabad and because of GST e-Commerce has flourished.

And consuming states like West Bengal has benefited since unlike VAT, GST destination based tax where goods is consumed.

2) ITC between state and central taxes

In VAT you can get ITC only for goods from a dealer of within your state and similarly CENVAT for central taxes i.e Service Tax and Excise etc.

In separate silos & there were no ITC possible but real world doesn't work that way.

A retailer would consume services like telephone/internet/maintenance/compliance/rent etc. for which they can't claim ITC

Similarly a software company can't claim ITC for furniture / consumables / computers etc

And what happens where there isn't ITC. Under-reporting.

Since you can't claim ITC you add it to your cost of purchase which meant final good's output cost was bit higher which was paid by purchaser. YOU the end consumer.

Hence VAT was inflationary as compared to GST.

This is why in GST, my company's effective compliance cost is lower than in VAT because I get ITC for the compliance, 18% lower to be precise due to ITC.

And this is my reaction when I hear people say compliance cost has increased in GST.

Every other day we will see articles deriding #GST how it is ruining business, small retailer are burdened by huge compliance with amazing hyperbole and rhetoric. The shrill of the hyperbole competes with the hollowness of the rhetoric.

I still haven't read a convincing argument that shows #GST is causing mayhem, is a colossal disaster.

Yet so see how GST for the *majority* of business (not the outliers) is WORSE than the regime that was before for an honest tax payer.

Most articles hide behind blanket statements of anonymous businessman, without even having the basic journalistic professionalism to ask *WHY* & *HOW*.

Let me try and ask those questions and answer them

Assuming there are the following factors which determine the negative implications of a tax regime

- Threshold (Revenue after which is required to register)
- Complexity of rules
- Compliance complexity
- Compliance cost
- Interface with tax machinery

Threshold
--------------------

In TNVAT the threshold was 5 lakhs and at 10 lakhs you had to collect taxes

In GST it was Rs 20 lakh now it is increased 40 lakhs

Complexity of rules
---------------------------

Any tax regime will be complex when administering a vast country like India, but if you compare just the sheer complexity of VAT vs GST

GST is far more simpler than VAT

Take the example of ITC

https://twitter.com/shyamdotme/status/1198824361022484481

Compliance complexity
--------------------------

If you are a small retailer having revenue less than 1.5 crore you have to file 12 monthly and 4 quarterly return other forms are prefilled just need to review them.

compare this to TNVAT

https://twitter.com/shyamdotme/status/1198824361022484481

As with any new system there will be ambiguity and lacunae, but these are being addressed continuously and constantly by administration and the GST council has been surprisingly pro-active

On such case was creating a new slab for Gold and gems

financialexpress.com/market/commodi…

Tax rates are constantly rationalized, more and more goods are being put in lower slabs.

indianexpress.com/article/busine…

If you opt for Composition scheme, in the of most consumer-facing retailers like your local grocery / kirana stores the tax rate is 1% ..... ONE EFFIN PERCENT !!!!

and the compliance (to the best of my knowledge) is only a single form filed annually.

I challenge anyone to show me a simpler compliance than having a flat 1% tax and file return annually.

Unfortunately many are unaware of simplicity and unscrupulous "consultants" pray on the gullible to make a quick buck but this isn't the flaw of GST but the greed of few.

Compliance cost
------------------------

There is no reason the compliance cost of GST should be be more than in VAT. As mentioned earlier our compliance cost actually reduced since we get ITC of the compliance service.

But as with any service there would few greedy ones who will use the ignorance of consumer and charge as much as they can.

And spreading the myth that GST is more complex in these poorly researched article after article on GST only helps fill pockets of these.

There are GST softwares, accounting solutions like @zoho available apart from reasonable GST filling service from as low as Rs. 463 per month at a GST suvidha kendra less than the cost of couple of movie tickets.

gstsuvidhakendra.org/wp-content/upl…

Interface with tax system
-----------------------------

This was the bane of the existence of honest businessmen, even if you were 100% compliant and honest there will be certain "demands" you can't avoid.

I was about start a new company and the quotation for VAT registration was around 50K of which 30K was "unavoidable other expenses", we all know what that means.

Luckily GST was introduced and I got GST registration sitting in my home in 3 days and with ZERO "other" costs.

Not once I had to visit the office of the assessment circle, #touchwood

Everything is online, the entire process is audited online so if some officer holds the registration process for "special" reasons, it is know in the entire system.

All notice and it's reply is only online

This audibility and traceability keeps a tabs on officers, Obviously it won't be squeaky clean but reasonably clean where an honest person won't feel suffocated.

The system is moving to a direction which rewards honesty.

As I mentioned in my opening statement nothing is perfect it can't be.

But as they say perfect is the enemy of good and #GST is good.

#GST can be better, we all can be better but it is a revolutionary change which should be lauded.

By making blanket, non-specific criticism of #GST, as they say we are throwing the baby with the bathwater.