An open letter on GST from a local trader to whomsoever it may (not) concern
Dear Mr. BigTicket,
I have come to know that you’re a great supporter of the Goods and Services Tax, which according to you is inarguably the most ‘important’ tax reform India has ever seen. Very well, and thank you. Everyone is entitled to their views in this great, plural country and in our democracy, the most important lesson is the majority is right. Interestingly, I am part of the majority here, in case you are not aware. That is the vast populace of consumers and small traders who are bearing the brunt of this godforsaken half-baked idea.
Let me tell you why.
I am a small-time trader in the South of the country. I run a small hardware shop. Mine is a traditional business. Which means my father ran it for decades before he passed the baton to me. Most of our suppliers and even consumers are those who have known for years. Now that GST is applicable to all taxpayers with an aggregate turnover of Rs. 20 lakhs, my humble shop also falls under the new tax system. Now let me tell you my current ordeal, yes, my post-GST story.
I usually get supplies from a medium-sized wholesale trader who is located in a nearby town. My father and the parents of this trader were friends and they trusted each other in business and other affairs. We never paid them upfront for the goods we took. It was a case of gradual repayment. And everything was working fine for both parties. So far, that is. Come GST, my supplier finds out that he has to input all his invoice transactions into the GST Network if he wants to claim his input tax credit. Frankly, my supplier is still struggling to figure out how the whole system works. But that’s fine with any new, game-changing tax systems. But that’s not the case here.
I asked a few experts and they told me that input credit means that at the time of paying tax on output, a trader like me or my supplier can reduce the tax we have already paid on inputs. If you are a hardware shop owner like me or my supplier, the tax payable on one final product is Rs 500 and the tax paid on input (things we bought from others) is Rs 300, you can claim an input tax credit of Rs 300 and you only need to deposit Rs 200 in taxes. This looks pretty simple on paper.
Now comes the problem. In our kind of business, trust is one form of capital. I don’t know about other countries. In India, especially in south India where I am from, we all trust each other and let each other run their affairs on credit anchored on this trust. We generally don’t keep bills or vouchers for this. Illegal? I don’t know. We have always done business like this. For instance, when I take my supplies from my supplier, I pay him a token amount or at times only a third of the invoice value. He knows I will pay it back as and when my goods are sold and the cycle continues. But now, GST has broken this regime.
If he or I has to claim input tax credit, the prerequisite is that the sale should happen in full and it should be logged into the GST Network. Which means all the parties will be forced to pay upfront because we have to tell the taxmen that the sale had happened in full in order to claim the tax credit, which wasn’t the case earlier. Now everything is online, which is a great idea, according to our Prime Minister, but in a country where official literacy rates are just about 70 per cent, which also means, the real rates must be much lower than this figure, and English education is much much lower and technical education is really pathetic, expecting the country’s vast populace of traders and consumers to move online with their filings without offering them an alternative sounded really cruel to me. But like many things happening in the country now, my opinion hardly matters.
So, I tried to buy a copy of the book, The GST Nation by one Ajay Srivastav. There are many such books, but I bought this one. There were several examples, but nowhere I found the word I was looking for — trust as capital. Most of the things I didn’t understand. Someone told me that clauses keep changing.
As on date, 79 notifications have been issued before and after the advent of GST. And many more might come, who knows! Now that I am not able to pay upfront and my supplier will lose money if I don’t do so, I’m left with very few choices. One, I can borrow money from someone and pay and get my supplies. But that is not a sustainable way. Because when I exhaust one segment of my goods, I have to go back to buy more and in most cases I’d want more goods depending on the demand from my customers: this might make me borrow more or cut my list to suit my financial capabilities which will affect my business and sooner or later I will be forced to down shutters.
Another scenario is to change my supplier. I can go to a big supplier who can afford to give me things on credit and run things in GST-compliant ways. When I spoke to some of them, they all wanted more margin. They don’t trust me like my old friend did. If I say yes and continue trade with them, my profit margins will be skewed so much that I will start losing customers very soon and I will be forced to shut shop. Of course there were taxes earlier, VAT to OCTROI and many more. We happily paid all of them. They all gave some breathing space, always. They never made us look like criminals even if we delay payment or disclosure. But not any more, I guess.
I was obviously worried. If my old supplier and I decided to do business the old way ignoring GST, the penalties are unbearable. As I said, this is mandatory, there is no other way to go. As I was writing this, I got a call from a big supplier. This company is a manufacturer, supplier, trader and all-in-one. They have an offer for me. They said I can continue my small hardware business as I like it, all I have to do is to sell it to them and run it as a franchisee of their big outlet. They are headquartered in a metropolis and have branches across the country. They said they understand that I cannot run this for long and the best way for me to survive is to be a member of their ‘family’. Of course I have to run my business on their terms. I haven’t decided what to do.
But one thing I am sure of it is that, I am not alone. Lakhs of such small businessmen like me are facing this in many other sectors. And in case you don’t know, Mr. Big-Ticket, they are protesting across the country. weavers and those involved in making the famous Banarasi sari went on indefinite strike some days ago to protest the 5 per cent GST on their product. Interestingly, the Banarasi Vastra Udyog Sangh, which is the parent organisation of Banarasi sari producers and traders, is affiliated to the BJP, the party that rules the country now and the party that imposed this toxic tax reform on us.
In Tamil Nadu, cinema theatres have stopped screening, to protest the imposition of 30 per cent entertainment tax, on top of the 28 per cent GST. Now the movie industry will have to pay 58 per cent tax. Those who watch films will have to bear a share of this. The leather industry, already under wreckage thanks to the BJP-government’s cattle slaughter ban, will be crushed under the 5 per cent GST imposed on its products.
Those are just a few examples. I am sure there are many more. What I don’t understand even now is, what was the hurry my dear friend? Why no one has asked us, the sellers, or you, the buyer, about this before they decided to roll this out? Or is it that we have entered a period where the common people do not matter at all? Don’t tell me democracy is no longer the ruling force here.
A local trader (as of now).