Will GST Wipe Out Kolkata's Shell Companies?

Notes ban has already hit the parallel economy, say experts. Surveillance is tight and GST is another punch.

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Will GST Wipe Out Kolkata's Shell Companies?

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Billions are made in crumbling old buildings in Kolkata that are home to shell companies

Kolkata:  West Bengal Chief Minister Mamata Banerjee says the haste over the rollout of Goods and Services Tax or GST is "an epic blunder". But many in Kolkata say the sooner GST is implemented, the better as GST will end a blot on Kolkata - its infamous multi-crore parallel economy of jama kharchi deals, shell companies and cubby-hole entry operators. But insiders are shrugging it off.

Billions are apparently made in crumbling old buildings - mostly - in Kolkata that are home to shell companies, jama kharchi dealers, cubby-hole entry operators, some of them allegedly well trained Chartered Accountants. Will GST hit their business? 

A hunt for answers at 9/12 Lalbazar Street is a wild goose chase. A Mumbai based corporate due diligence analytics firm has reported this address has 315 shell companies. One room is address for 84 shell companies. Bang opposite the police headquarters, it has six blocks, five-stories, a warren of dark, narrow corridors lined with cubby holes. In all, 600 of them.   

Even the postman is harassed delivering letters here. "I cannot find half the addresses. When I do, there is no one of that name," he said, exasperated. 

Two CAs setting up an e-learning start-up don't believe Kolkata's grey zone will ever end.   

"Jama Kharchi, shell companies, it's a billion-dollar industry. I don't expect a billion dollar industry to just stop because of a government initiative," says Abhishek Bajaj, a graduate of St Xaviers College now setting up Zeroinfy, a start-up for commerce gradates.

"It will never stop. Government knows it. It is funding government also. Being from commerce background I know the loopholes," he adds. 

Mr Bajaj's friend Akash Singh adds, "It may slow down for the first month or two. After that it will pick up once again. It's been going on for 20 years and will continue for the next 20."

But experts expect GST to make such operations simply unrewarding. The risks for the 1,000-odd grey firms in the city turning over 25,000 odd crore with impunity for years will be too high.  

Vinod Kothari, a top company law consultant, says, "GST ...by rule of economics will eliminate people who don't report their turnover for goods and services, there by squeezing the parallel economy. The shell companies exist to service a parallel economy. If the parallel economy ceases to exist, the need for shell companies would die down."

Notes ban has already hit the parallel economy, say experts. Surveillance is tight and GST is another punch. Pinch, the cubby-hole men insist. But they are ready for reinvention if need be.    

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