GST is yet to formalise economy, demand for cash high: HSBC report
The report, however, said that over the long-term, GST will lead to more formalisation of the economy, but differs from the comment made by Finance Minister Arun Jaitley in April.
Published: 23rd June 2018 01:34 AM | Last Updated: 23rd June 2018 06:47 AM | A+A A-
NEW DELHI: At a time when the government is boasting itself of successfully implementing the Goods and Services Tax (GST), British brokerage firm HSBC, in a fresh report, said that the new taxation regime has not delivered on the promised formalisation of the economy as yet and its several glitches has increased the demand for cash.
“The GST regime was originally associated with formality. But so far, in our view, it has not been able to live up to that promise nor has it brought down the demand for cash, which has in fact only gone up,” HSBC said in a report on Friday.
The report, however, said that over the long-term, GST will lead to more formalisation of the economy, but differs from the comment made by Finance Minister Arun Jaitley in April, when he said that the GST and note-ban had led to the increased formalisation of the economy.
The GST was implemented from July 1, 2017, and since then, it has undergone multiple changes, be it change it taxation structure or levying of additional cess. The new taxation regime, in its short run, has also seen many technical glitches.
“In the short-run, the glitches in the framework, including delays in tax refunds, teething issues with the new I-T network and higher tax rates for services have led to an increase in the cash-based activity,” the report said, attributing it as one of the factors for the rise in cash circulation.
“Cash in circulation is rising above trend, but not because rural India is faring better, rather it is due to a revival in the ‘informal’ sectors, thanks to the continued remonetisation,” the report said.
Citing corporate sales data, the report said the level of formalisation of the economy has gone back to the pre-note-ban levels. “Any semblance of increased formalisation of the economy following demonetisation, if at all, has for now, reverted to pre-demonetisation levels,” it said.
The report said that once the GST settles down, the e-way bill system matures and refunds are expedited. With the improvement in I-T systems, tax evasions will fall and the recent rise in informality will diminish gradually, it said.