One year of GST woes in Kashmir

The Goods and Services Tax (GST) was implemented in Jammu and Kashmir on July 8, 2017, after it was vetted by the State Assembly. A year after its implementation, Kashmir-based traders and the local business community are struggling to cope with the new tax regime. Already battered by the devastating 2014 floods and months of shutdown in 2016, GST has put extra burden on the local business community. Last month, on July 8, Kashmir-based traders and the business community observed the first anniversary of the new tax regime as a “black day”.

The Jammu Kashmir Socio-Economic Coordination Committee (JKSECC)—an amalgam of trade, industry, tourism, tour & travel, horticulture, transporter organisations and civil society formations—issued an ad which was published on July 7 in local newspapers, a day ahead of the first anniversary of GST. The ad commemorated it as a “black day”, calling it a “surrender day of Fiscal Autonomy of Jammu & Kashmir”.  It read: “On this day in 2017, GST law was illegally and deceitfully extended to Jammu & Kashmir … JKSECC is determined to take forward the struggle till the GST law (along with other laws) is rolled back and Jammu & Kashmir is declared a free economic zone.”

Muhammad Yaseen Khan, chairman of the Kashmir Economic Alliance (KEA) and president of the Kashmir Traders and Manufacturers Federation (KTMF), an umbrella body of Kashmir based traders, says GST was implemented in Kashmir last year in a hurry, and by force, without taking the consent of the local business community. “GST has been a failure here, and the business community in Kashmir has suffered maximum losses since its implementation,” says Khan, adding that local businesses now have to file quarterly returns under GST. “Whenever there’s a GST council meet, new changes are brought about. The whole system is confusing and frustrating for the business community.”

According to Khan, about 65 per cent of business was badly affected in all sectors in Kashmir, post the GST implementation since last year. “We are only able to do 35 per cent business now,” he says. “We were opposed to GST implementation here. It was implemented by force, as it is also a political issue for us. We are totally against it. Our fiscal autonomy has been taken away.”

Khan says while filing returns under GST, the local business community also faces is confusing technical issues.  “There are everyday issues with filing returns in the online system under GST. The GST portal often remains busy. We also have Internet issues as the net is often shut down here, which creates more problems.”

Everyday goods have become more expensive. “Food items, which are of everyday use, have become costly after GST. There’s added tax now on other items like footwear and ready-made garments. The tourism business sector has also come under GST,” says Khan.

Last year, when the Lok Sabha passed a legislation to extend GST to Jammu and Kashmir, it became part of the “one nation, one tax” regime. “The dream of economic integration of the country has been fulfilled,” then Union finance minister Arun Jaitley had said in his reply to the discussion on GST’s extension to Jammu and Kashmir, calling it a “positive step for the state and the country.”

However, according to traders and local business community in Kashmir, almost all businesses in the valley suffered losses following the implementation of GST. “Earlier we would pay tax after three months, but under the GST tax regime, we have to pay taxes more regularly,” says Mukhtar Yousuf, president of a faction of the Federation Chamber of Industries Kashmir (FCIK).  “When we bought goods for ₹1 lakh earlier, we would get 100 per cent value. Today when we buy for the same amount, we only get 80 per cent value.”

To save some taxes under GST, Yousuf now buys the essential raw material for his business from outside the state, and only once every three months. “The material is costly and GST is charged on it. The material I buy from outside only takes a week to get ready for transportation, and I cannot bear the transport costs again and again,” he says. “I also have to think of my employees, and pay their salaries on time. It is getting harder for me to continue with this business, with each passing day.”

Farhan Kitab, the chief spokesperson of the Kashmir Traders and Manufacturers Federation (KTMF), says during the 2014 floods, local businesses and traders in the valley suffered huge losses from which they’re yet to fully recover. GST implementation adds to their woes. “We need more capital and more funding now to purchase goods,” says Kitab, adding that businessmen in the valley are paying 18 per cent of 28 per cent billing charges under GST. “We are facing funding problems as well. There is no availability of goods on a larger scale in the market and because of GST, we are not able to buy goods in bulk.”

Under GST, the transacting bill, or e-way bill, is linked to the distance from which the material is transported. “We are given eight to nine days for shifting this material from outside states to Kashmir. But if the material is not transferred within the given days—due to landslides or some other reason—the bill expires,” Kitab says.

There is a lack of awareness among businesses in the valley on how GST works, and the technical issues involved in filing tax returns. “People are facing problems on how to use the GST software, while some are even struggling to understand what GST means and how it works,” says Kitab. He says buying GST software is also proving to be costly, especially for small businesses.

When asked about any positives effects of GST, Kitab says under the new tax regime, poor quality goods cannot flood the markets. “We can purchase good quality goods, as they come here directly from the company,” says Kitab, who wants GST to be run in a proper and phased manner in the state.

GST hits the handicrafts sector

GST also came as a death blow to the local handicrafts sector. Manufacturers and exporters say post-GST handicraft exports outside India, and domestic sales within India, saw a decline of almost 25 per cent compared to last year, according to a recent report in Greater Kashmir.

Last year, Sheikh Ashiq, a member of the Committee of Administration, J&K region, of the Carpet Export Promotion Council (CEPC), and a leading valley-based exporter, initiated an online petition, “GST Free Handicraft”, demanding the rollback of GST on the handicrafts sector. “There are no buyers and takers for the finished goods that weavers and other workers have made from [the] last three years, the imposition of taxes will discourage them to continue with this trade and their families will be affected by the GST regime,” the petition stated.

Parvaiz Naqash is a papier-mâché exporter in the area, and the owner of Akbar Art Gallery. He says before GST, traders were exporting handicraft items outside the state without any hassles.

In a meeting held last year, the then finance minister in the PDP-BJP government, Haseeb Drabu, told handicraft exporters that they would get back taxes levied under GST after exporting their goods.  “But all those promises proved to be false,” says Naqash. “One year has passed, and we haven’t got anything back from the government. In exports, we earn 10 per cent and we have to pay 12 per cent GST, so we are at a loss. Now we are thinking of doing some other local business, given the losses suffered since GST was applied to this sector.”

Naqash sees a bleak future for the handicrafts sector in Kashmir unless GST is rolled back—or at least lessened and modified to minimise the losses. “I’m telling you this based on my experiences of 25 years in the exports sector—if GST continues as such, within the next three years, no businessman in Kashmir can export goods under this tax regime,” he says. “After three years, if GST remains the same, you won’t find any exporter in this sector in Kashmir.”