Movie theatres in Tamil Nadu reopened on Friday after a shutdown to protest what the industry claimed was double taxation — a municipal tax of 30 per cent had been levied on top of the 28 per cent Goods and Service Tax (GST). The tax had the potential to cripple the movie industry in the state, which provides jobs to over 11 lakh people. Elsewhere, in Surat, where traders went on an agitation, and in the textile industry hubs, there have been signs of protests at the introduction of the new indirect tax. Besides, many consumer goods firms faced the dilemma of putting stickers with the revised Maximum Retail Price (MRP) on their products fearing it would mean breaching the rules of the Legal Metrology Organisation.
Thankfully that concern has been addressed by the government, which is now closely monitoring the implementation of the new tax regime and trying to sort out the glitches. Some of these should not come as a surprise given the major transition underway for the industry with significant changes in taxation and compliance requirements. It is not just industry and trade, but state governments too are being tested. Soon after automakers slashed the prices of vehicles with the rollout of GST, the Maharashtra government raised the Motor Vehicle Tax by two percentage points across all two, three and four-wheeler categories for the second time in less than a year to mop up additional revenues. The state is also looking at linking fiscal incentives to job creation in the new tax landscape to maintain its status as the top investment destination in the country. All these cannot be pinned on the introduction of a new tax. It is also a fallout of the fiscal burden brought about by the states themselves in some cases, by promising to write off farm loans at a time when revenues too have been hit in a slowing economy.
The central government has been pragmatic by providing breathing time till September to trade on the compliance front. Addressing some of the concerns of the industry swiftly in terms of creating more categories and by granting concessions in the initial phase of the rollout may be perceived as being more responsive and sensitive compared to the post-demonetisation days. But the risk it entails is that it sends the wrong signal to other pressure groups and lobbies, and also marks a further dilution of the basic structure of the GST, with its multiple rates. The government may be better off reviewing some of these rates and categories after three months, by which time the industry would have settled down to the new taxation system. That’s also the time when we will know who the winners and losers are. Implementation, therefore, holds the key.