Adi Godrej, chairman of one of India’s largest manufacturing and real estate groups, said most of the complaints about the new Goods and Services Tax is coming from businesses that have been built on a model of tax evasion.
“The complaints about the GST are mainly coming from people who used to evade taxes in the past. Now, it becomes almost impossible to evade taxes,” he said in an interview with CNBC TV18.
Godrej’s comments come in the wake of widespread complaints by small businesses — including shops and establishments — about the ‘tax tyranny’ of the GST.
Rahul Gandhi, the incoming present of opposition Congress Party, has termed it the Gabbar Singh Tax for this reason.
Unlike in earlier tax regimes, in GST, the tax paid by any manufacturer or distributor or retailer is heavily intertwined with the tax paid by the others in the supply chain.
Moreover, GST — being a single, uniform country-wide tax administered by the center — has also made it possible to easily track all the taxes paid — and therefore evaded — by the use of computers.
This has created huge problems for most small businesses in India where tax rates are often unrealistically high. Among those hurt the most are small shops and establishments.
Smaller shops and establishments used to compete with large, organized chains by helping their customers buy their items without paying taxes — something that was impossible for large supermarket chains.
As a result, they were able to withstand competition from big chains such as Reliance Retail and Future Retail.
So too, most of the smaller real estate companies used to show only a part of their revenue on the books, and used to pass on the benefits of tax evasion to the buyer of the property.
With the coming into force of GST, such business models have been thrown into disarray, while leaving large, tax-compliant companies untouched.
As a result, while the GST regime has brought many real estate companies to their knees, Godrej Properties — the real estate arm of the group — has only seen its growth accelerate in recent quarters.
It has even benefited to some extent as it has been able to garner a larger share of the market as its rivals struggled. The company has inked several agreements in recent quarters to develop properties for cash-strapped rivals.
To ease the pain for small business, the government recently reduced tax rates on over a 178 items from a relatively steep 28% to more realistic 18%.
These items include chocolates, washing powder, shampoos, aftershave, deodorants, granite, washbasins, plywood, sanitary materials, wrist watches, and mattresses.
NO GABBAR SINGH
Adi Godrej said the changes are not unexpected, and are exactly the kind of improvements that were targeted through the introduction of the GST.
“GST has done well for the economy,” said Godrej, who also operates one of the largest packaged consumer goods companies in India.
“This was expected earlier and this is being played out. If you were a tax evader, obviously it will be difficult for you
“Many have to start businesses anew. Other than that, I don’t see much problem from GST,” he added.
The chairman of Godrej Industries also dismissed concerns that the ongoing disruption is disturbing the overall growth of the economy.
He pointed out that the GDP growth has already improved to 6.3% for the three months ended September from 5.7% in the preceding three months.
“Third quarter, I think, growth will be huge because the base (comparable quarter last year) also was poor. I think the economy is doing well. That, to my mind, will continue,” he added.