The toughest job is to make anything simple. If the process and access could be simplified, the leakage from any project, scheme or structure would be minimal. The indirect taxation structure in the country was most complicated in the world. Tax consultants earned in millions by manipulating the loopholes of complex indirect taxation structure. The big four professional services firms Deloitte, PricewaterhouseCoopers, EY and KPMG offered eight-digit salary and various incentives to tax professionals for manipulating the loopholes of indirect taxation structure.
The implementation of GST has forced these professionals out of business. More than 20 partners and 50 directors from top tax services firms have left the job or were kicked out because they were not able to generate targeted revenues for the company, said a report by The Economic Times. The top firms offer 30 percent of the total generated revenue to partners. But given the implementation of GST, the revenue is expected to decline in upcoming years. “It’s the case with every market in the world; there are mainly three stages of revenue growth after a new tax framework is introduced. First the phenomenal growth stage, then the plateau and then the gradual decline,” said the head of one the Big Four firms.
The implementation of GST in mid-2017 gave 40-50 percent growth to the firms and generated huge money for the partners. But as the indirect tax structure stabilizes, the revenue for tax consultants will decline exponentially. “Now what we are left with is the compliance work in GST. The days of 40% and 50% jump in revenue are gone. We had increased the team size due to the sudden growth, now some of the partners will have to go,” said India head of one of the multinational firms.
The innovations in artificial intelligence and large scale automation have disrupted the indirect tax consultancy industry. “So, while earlier adding people meant adding revenue, now one doesn’t need to add as many people to add revenue. So not only are we hiring less people, the revenue pressure is felt by those who are in the system,” said a senior partner heading GST team.
The reform in the indirect tax system was due for the last three decades. Different tax rates across the state and sometimes even in intra-states, cascading taxation and complexities in filing returns has held the economy back for many years. The GST was conceptualized at least three decades back, but no government succeeded in implementation given the apprehensions of state governments. Modi government brought all states on board and addressed their grievances in a positive manner like revenue loss compensation for 5 years. Finally, all states agreed to pass the indirect tax reforms and the historic law was implemented in mid-2017. Since then, the GST council has become the best example of cooperative federalism.
The implementation of GST is expected to accelerate the GDP growth by 1-2 percent. The shrewd tax consultants who manipulated the system for the personal gain at the expense of national loss are out of business. Now the rule of law prevails in the system and everybody is treated equally.