Unwarranted rush

There is a strong case for postponing the GST roll-out

Prime Minister Narendra Modi last week reviewed India’s preparedness for the roll-out of the goods and services tax, or GST, at a high-level meeting. The statement issued by the Prime Minister’s Office after the meeting indicated that it continues to be the government’s opinion that the new tax system can be implemented from July 1, now less than three weeks away. The meeting of the GST Council over the weekend seemed to underline this consensus. However, it is far from certain that this consensus about readiness extends beyond the corridors of power. Banks, tax preparers and industry may not share this optimistic view. It is worth noting that the GST seems to be considerably more complex to adopt than the value-added tax, or VAT. The GST requires constant online submission, and complaints have come in that the portal is difficult to comprehend in parts. The stress-testing of the GST Network – will the information technology backbone of the new system be able to handle the pressure of multiple users at once – has also been questioned, though the officials involved seem confident. More to the point, however, the GST Council is still framing and changing the rules under which the new tax system will operate. Several outstanding issues remain. 

It seems absurd to expect the private sector to internalise final rules that will emerge just days before a transformative – and disruptive – tax reform. This is not to criticise the government for delay; achieving consensus on tax rates and procedures across states, parties and bureaucracies is naturally difficult. However, the government should be wary of over-confidence about banks’ and companies’ ability to swiftly adapt to the new system. Warning notes about lack of preparedness have been sounded from many surveys of the private sector. Given that such surveys are typically biased towards more organised companies, it is revealing that most respondents are even more concerned about the preparedness of their vendors and those that they do business with. Earlier this month, the Indian Banks Association reportedly told a parliamentary committee that their members’ readiness for a GST roll-out in July was “a question mark”. 

While the government’s energy in targeting the July 1 roll-out is admirable, it should now seriously consider whether a delay would be wise. A shambolic and confused roll-out will be seriously problematic for the economy, which is already showing signs of a slowdown. Furthermore, a problematic roll-out might politically compromise the idea of tax reform itself. This is particularly acute when the roll-out of such procedural changes occurs online, which provides minimal scope for adjustments and adaptations. The harsh binary logic of online procedures, and the fallibility of government-procured information systems, can combine to suddenly turn positive energy negative — consider, for example, the long-running political cost of the botched online roll-out of Barack Obama’s healthcare reform in the United States. The government should thus examine with new eyes the costs and benefits of a delay in the GST roll-out by a couple of months. Clearly, much has already been done; but much remains. Given the epochal and deep-rooted nature of this reform, it is important to ensure that errors in its roll-out are minimised.