Revenue Secretary Hasmukh Adhia tells NDTV that the government is all set for the midnight Goods and Services Tax or GST launch on Friday.
Here is a full transcript of Mr Adhia's interview with NDTV:
NDTV: We really just have a few hours to go as it were before the GST rolls out. It is being called one of the most ambitious tax reforms in the history of independent India. It is a great pleasure to have with us the man who is really been spearheading it, driving it. If it's a really complicated, complex task then he and his team have been really working to put it all together. So it's with great pleasure that Id like to welcome the Revenue Secretary, Dr Hasmukh Adhia, who I have to say Sir is looking remarkably calm, considering just how much behind the scenes activities there must be right now. And for starters our compliments and congratulations for all the work that's been done by you to roll this out
Hasmukh Adhia: Thank you very much Vikram, but if you think that I am calm it is mainly because of my team. Because my team is outstanding in terms of the work output they give to me, in terms of their intelligence, their cooperative attitude. So I am really lucky to have such a team
NDTV: But as a person who is spearheading it are you nervous at all right now?
Hasmukh Adhia: Not at all, not at all, because we have done enough for it; because we are quite confident that whatever amount of hard work we have put in, will definitely bear fruits
NDTV: So Sir, I just wanted to understand, given where you are right now, how ready are we? Because what, we are just 30 hours, 35 hours before GST rolls out, how ready are we? What still needs to be done, what are the last minute behind the scenes activities that still need to take place?
Hasmukh Adhia: We have made a checklist of what all we need to do before 30th of June. We have been vigorously following it up and that checklist is almost coming to an end now. Whatever activities we were supposed to do by 30th we have already done it
NDTV: So just to understand, you had to notify some things which you have done yesterday. Many of the States had to make notifications and all of that has to be done in the next couple of days. Some of the states have expressed reservations about seeing if we are completely ready or not, West Bengal in particular and Kerala. Are they on board? Are they also going to meet the deadline?
Hasmukh Adhia: No, no, as far as the governments are concerned, even of those States, they are fully ready and all the States will be issuing their notifications today or tomorrow and tomorrow we have the meeting of the Council in the evening. We have requested them to bring copies of all the notifications so that we can make sure nothing is missed. What they must be talking about is probably the preparedness on the part of some of the traders, that's it
NDTV: If you can understand what it takes to get this thing done, there is all the notifications, all the laws have to come, Constitutional amendment has already happened. But it is also a massive technical and technological task putting together, of the network and everyone has to be compliant to be on the network, that people are still wondering whether that is going to be ready or not. Are you expecting a period where people will not be ready, there will be traders who will not be ready? There will be people who will not have access to online systems
Hasmukh Adhia: There is absolutely no new requirement we have brought in this, absolutely no new requirement. What we are saying today is also is please understand the requirement that you have to register online. Today all the things are online; if you have to register for an IIT exam or if you have to register for a post of a teacher in a school; every State of India, every Government of India vacancy requires you to file it online. So registration is online which everybody can do. The second thing we are saying is return filing is online. We are not saying, unfortunately there is a lot of misimpression being created that there is a real time invoice matching. There is no real time invoice matching, where we are asking the moment you create an invoice you put it inside the computer on the Internet, not at all. All we want is at the end of the month they will file their return in the computer, that's all. Today also if you ask me there are 4 crore people who file income tax online, the return is filed online by 99.9 percent people now in income tax and all these traders, we have got only 60-70 lakh traders who are supposed to do it, and all of them would be filing their income tax return online. So there is nothing new for them. In many of the States even the VAT returns are online, exercise returns and service tax returns are online. So return filing online is not a new experience for anybody. So there is nothing new about which they have to get prepared
NDTV: So I am actually going to, within the next 15 minutes, just ask, everyone has these questions, what is in it for me first of all? We know what there is for the country, but traders want to know, for us consumers want to know, what's going to happen? Prices going to go up, prices going to go down and so on so forth. So lets just look at those step by step now that we've started to talk about the traders. You yourself are saying and this is what many of the State governments have said, they are not completely ready. They don't have the invoice tracking in their own level. Can they really track all the inputs that are coming to get the input credits? How much of that work at the end of the day is still left? Unlike the other things that are happening once a year here, many people are going to have to file those returns fairly frequently, it depends on their size of course
Hasmukh Adhia: Well frequency of return is always once in a month in VAT regime also and it was always online in many of the State governments also, like Gujarat, Maharashtra, everywhere it was online, return filling. All we are saying is, and even the invoice-wise detail filing is required in many States today. There are many States which had started invoice-wise return filing, but that also doesn't apply to everybody. Look, out of about say 70-80 lakh dealers, taxpayers that we are having, 80 percent of them would be B2C dealers. They are small retailers. Not small and big retailers. Even if you were a departmental store and you are only a B2C dealer, you have to file total details of your turnover. You are not supposed to file invoice-wise details. So there is no extra requirement that we have put in. Only if you are giving your goods to B2B, then because the other person needs to take input tax credit of goods you have sold to him, that is why there is a requirement of input tax filing, that also once in a month. We are not saying that you have to do it immediately the moment you create an invoice. It's only once in a month in your return you have to show invoice wise detail
NDTV: So this perhaps is one of the areas and perhaps I could get you to just explain this is a little bit, as this is one of the areas that people are somewhat concerned about, the fact that at a certain size you are having to file three returns every month, plus some other forms there. So people are sitting and calculating that as 36 returns in a year, plus other returns, so it's going to be a headache. Now I know that a couple of them are computer generated. They just have to check that out. But perhaps I can get you to explain why was that really necessary and maybe you could have found a slightly less scary way of putting it, than GST Return 1, GST Return 2, GST Return 3
Hasmukh Adhia: Actually it's a problem of communication. I only wish that, now that Rules have been made, we can't change it immediately, but I wish it could have been called GSTR 1 to 3; instead of 1, 2, 3 we should have called GSTR 1a, 1b, 1c in which case this complication would not have been felt by people
NDTV: How many returns are there 36 to...
Hasmukh Adhia: No there is only one return per month of which there are three parts. One part of sales details the dealer is suppose to make a data entry of; the second part and the third part are all generated by the computer and shown to you only to ensure there is no mischeck. There is only a facility we are giving to the customer, to the taxpayer
NDTV: So you are filing one return
Hasmukh Adhia: One return per month
NDTV: One return and the other two returns are computer generated and you are suppose to verify them and check that they are correct.
Hasmukh Adhia: I would say the other two parts of the same return are generated by the computer and shown to you. So it is one return for one month I am filing if I am a taxpayer. I am filing all my sales details and based on everybody filing their sales details I will immediately get detailed of purchases I've made on the computer, because the person from whom I have bought would have put his details. So based on his details I would get it in my purchase side. So the second part of the return is purchase detail, which is computer generated and we call it GSTR 2. So there is nothing that I have to do except to check if all my purchases are there. If there is a transaction missing I can add; that facility is given to me. So I can just review it and if there is one voucher also I can add it and then I can accept it. So you have to simply click and accept. There is no requirement on your part to file anything. And then the third return, based on your sales and your purchase, is exactly indicating your total tax liability, and that can be accepted by you. You have to simply accept it and pay it, that's it. Nothing more to be done
NDTV: So you are thinking of changing the name at some point?
Hasmukh Adhia: Yes, it could have worked better if we said it's a one return three parts, one part you fill up, two parts computer will give you. I wish that would have been better to..
NDTV: Yes that would have made it less daunting because that's really the crux of the criticism for all the benefits that people feel the GST is going to lead to, probably will. The crux of the criticism is, has been, has it become too complicated in its system, in its implementation in India? Perhaps there were reasons for it and the GST council insisted on it. Not just of the many forms and the returns that have come up but also the multiplicity of rates. Now you are going to have to track 0% and 5% and 12% and 18%. So looking back again at it wouldn't it have just been better if we could have just got maybe two rates? A demerit rate and a merit rate or combined 0 and 5 percent and combined 12 and 18 percent, something like that?
Hasmukh Adhia: If we do it, it will be highly regressive to the poor people. If we combine the two rates what happens is that the rich people rate will come to the median level and the poor people will have to go up. So it will be more regressive in nature if we try to combine the two slabs into one
NDTV: If you combine it all into one rate, then what you are saying is correct
Hasmukh Adhia: Yes, even two rates
NDTV: What if you had three rates, for example you had a 0%, a medium rate and then a demerit rate for sin goods or whatever they had
Hasmukh Adhia: Okay, so suppose we have medium rate of 8% instead of 5% then all the essential commodities, which are now in 5%, there is a huge list of commodities which are in 5% at State level and there is no excise duty on them, that will come to 8%. So for example edible oil, edible oil is a highly consumption....
NDTV: You can move that to 0 percent
Hasmukh Adhia: But that will not be revenue neutral. How much of items can you put in 0%? So the question is you have to balance it against the interest of the poor people, meaning we have the balance in the interest of the poor people. We have to also see the revenue neutral position that our revenue should not suffer. So taking that all into account, to begin with we have started with four slabs, but believe me, today there are so many rates of exercise duty also. It's not four slabs in exercise duty, there are so many rates of exercise duty and every State has a got different date of tax on different items. So you can imagine if someone is operating all India, you can imagine how a company, like ITC or Hindustan Unilever, that in every State they have a different rate to follow and their billing and transfer of goods to those States, for the same commodity they have to have 31 different rates to be followed
Hasmukh Adhia: But earlier the VAT regimes weren't following HSN codes, so there were more disputes. Now we are following HSN codes. The 11,000 items listed in HSN codes, now we have a complete clarity on which item falls where, which rate, so that classification dispute will not be there, because the entire country will be following HSN codes. So that will be a relief
NDTV: So it's relatively easy is what you are saying for someone to figure out which case what comes in. One of the other questions that we've raised and I'm trying to get a lot of the problems out of the way and then come and look at the benefits, one of the other issues of course is, will the IT backbone be able to take the load of everything that's going to happen? Because lets face it, it's something new that has been tried and till day after morning, the morning of the 1st, even you won't a hundred percent know if everything is working fine. All though I'm sure you've tested...
Hasmukh Adhia: Well nothing is going to happen on the 1st. In fact we are only continuing the registration process. The return filing will only start in the month of August. So we still have one more month to go, so people need not unnecessarily worry about it. On the 1st itself nothing is going to happen except that there are some imports and exports, which are taking place, for which we will have to have a system which we have already put in place. Other than that, IGST transactions in import and exports, there is nothing we need to worry about on 1st of July. You know one of the best companies of India has been in charge of our IT software and they have done their own calculations and a lot of other agencies have done their security testing. So they are pretty sure of their load. I mean they have taken care of the amount of load that they are going to get and that should not be a problem
NDTV: Well a lot of people are also noticing on the 1st of July a number of things are going to happen. It's not just GST. It's the link of Aadhar to a number of other things. For example you can't file for a pancard now without an Aadhar. All those come in, which has led to another, some of the concerns which is privacy, security, what if somebody is going to hack into this some way? Will the data always be secure?
Hasmukh Adhia: Well, I mean as long as you take care of all the security requirements, we have done testing by four, five agencies and security testing is done. Now after all that risk you are talking about is true of any other system in the world. I mean that way this case is with the banking also....
NDTV: Privacy concerns are there with every system in the world, privacy of data is a concern anyway. It's just that, more and more of your data that you are putting online, at the back of your head it is a question of...
Hasmukh Adhia: But this is not a personal data we are asking for. What they are putting in is a business data and that has to be put in. Banks are also asking for your entire entry of whatever debits and credits you are doing, so that privacy and security there is no problem
NDTV: Okay. The big advantage of course of all of this for you is that the more and more data that gets put online and the more it is all linked PAN, Aadhar, what the GST is, it must be, it's soon going to become very, very difficult to evade taxes
Hasmukh Adhia: That should be the way of life of course. I mean why should honest taxpayers only keep paying and dishonest taxpayers get away? So the idea in any civilized country should be that everybody should have equal responsibility to pay taxes if it is due. That should be the objective of any country, any civilized country should have that objective
NDTV: And the advantage of everyone paying taxes, paying their fair taxes
Hasmukh Adhia: Then we can bring down the rates
NDTV: Is that you can bring down the rates
Hasmukh Adhia: We can bring down the rates. If everybody pays taxes then we don't have to have the 28% slab, we don't have to. There is a big demand made by corporates that our income tax rate is too high, 30%, please reduce it to 25%. Now how can we fulfill that? Today, in India if you see, only one-third of the income comes from direct taxes, two-third comes from commodity. It should be other way around. We should get two-third from direct taxes which is the norm in other countries
NDTV: By the way even the people paying direct taxes, it's only as the Finance Minister said...
Hasmukh Adhia: Very small number
NDTV: It's a very tiny percentage
Hasmukh Adhia: Tiny percentage of people. Can you imagine in this entire country 24 lakh people show income more than 10 lakhs. Not the income tax paid. They don't pay income tax of 10 lakh, they show income more than 10 lakh, only 24 lakh individuals in this country as per the data given in the Budget speech of Finance Minister. Now is that enough? We need to ask ourselves that question
NDTV: And as more and more people therefore have to pay and that's one of the major questions people are asking about GST. At the end of the day, if I'm a consumer, are prices going to go up for me or down for me and its eventual impact on inflation. What would be your assessment?
Hasmukh Adhia: Well we have taken enough care in the design of rates to see to it that common mans items are all kept in a lower than what it is now rate, so that way if the benefit of lowering of taxation rates is passed down to the people, consumers, then the inflation should come down for everybody, that is for sure. But temporarily because of the transitional issues it may not immediately happen, so, but we have to wait and see
NDTV: Okay and you have of course put in that anti-profiteering clause, what some people were concerned about is it going to be misused. Is that essentially to ensure that it will be passed on? And some people are also scared that they could be making genuine mistakes in the early stages
Hasmukh Adhia: No, mistakes are always, mistakes can be taken care of, but anti-profiting is a much larger issue. We are not going to use it for every small shopkeeper or retailer or wholesaler. It is only to be used in exceptional cases where the big companies you know, and there's mass production of items and their rate fixation is done in such a way that the benefit is not passed down. Then only we may have to get into it, our attempt would be, number one the competition in the market should itself take care of that, number two we will try to engage with them also and tell the ki why don't you do that? Why do we have to use a weapon of anti-profiteering at all, you know?
NDTV: Okay. So in the final analysis, just wanted to get from you the big, big benefits to your mind for the country. This may not have been the absolutely ideal, perfect GST but at the end of the day it is still the biggest tax reform that we have seen, so what do you think the benefits are going to be?
Hasmukh Adhia: The biggest benefit is that the country will become one as far as doing trade is concerned. So your boundaries will open and no logistics hurdles when you're moving your goods from one State to another. One commodity, same rate of tax in the entire country, now that is one benefit. Ease of doing business for people, that is another benefit. So on the whole the efficiency gains of GST are so many, so it should improve the profitability of companies also because efficiency gains are coming. So on the whole the companies will become more efficient, there'll be no inspector raj, everything will be online, all your returns are filed online. Only in 5% cases, based on risk parameter, there would be audit end of the year, but without that, just as in income tax today, you don't know who your assessing officer is. But every trader knows who is my VAT inspector. Why should we have that connection between, physical connection between the VAT office and the trader? They should all deal with the computer and computer will take care of everything, so transparency will be the biggest benefit also
NDTV: And the impact of that on growth and all of that, like with demonetization there was a problem?
Hasmukh Adhia: Obviously, when people find that this is a country where there is simplicity of taxation, there is much ease of doing business they would try and invest more money into the economy and that should also bring us some growth benefits
NDTV: And you're hopeful for a seamless transition without too many teething problems?
Hasmukh Adhia: No transition can be seamless, but we will try and make it as seamless as possible. We will be watching the situation, we will help people wherever the information needs and we'll try and see. But let people be assured that we have no intention of harassing anybody if it's a genuine mistake made by them