The Rajya Sabha on Wednesday passed the long pending Goods and Services Tax bill, a historic legislation that will enable a unified and efficient taxation system in the country.
Touted as the biggest economic reform since 1991, the GST will subsume India's messy plethora of indirect taxes, duties, surcharges and cesses into a single tax.
The landmark legislation is expected to simplify the complicated tax system in the country and make India an attractive investment destination.
Indian software giant Infosys is building a gigantic electronic infrastructure - a GST portal - where taxpayers can register, make payments and file returns. Some 7.5 million businesses will be covered by the tax.
The government, Finance Minister Arun Jatiley per say, have dubbed the passage of the Bill in the Rajya Sabha as a historic event. No doubt, the reform is one that could bring landmark changes to the tax regime in the country. However, there are many more challenges that await before the true benefits of the legislation are felt.
Nevertheless, a beginning has been made – one that political parties will find difficult to back out from.
However, the April 1, 2017, rollout deadline set by the NDA government for the new indirect tax regime may not be as easy as it appears.
Procedural hurdles
1) Since some amendments negotiated by the Congress were introduced in the bill in Rajya Sabha, it will have to be passed again in the Lok Sabha. Though one can see no problem here as BJP enjoys an absolute majority in the Lower House, every legislative process takes some time.
2) Presidential assent: Although President Mukherjee has always been quick in his response, be it his nod to execute terror suspects or green signalling President's rule in Uttarakhand and Arunachal Pradesh, he still can sit over or return the bill for reconsideration.
3) GST Council: After the President's Approval, the bill will go to GST council which will decide GST rate in consultations with the states. This could prove to be the most challenging part for the government. The council will be presided by the Union Finance Minister (chairman) and MoS in charge of Revenue; Minister in charge of Finance or Taxation, or any other Minister, nominated by each state.
Decisions will be made by three-fourths majority of votes cast; Centre shall have a third of votes cast, states shall together have two-thirds. All this will be made within 60 days of the enactment of the bill. It will decide the revenue neutral rate (RNR), the rate at which there will be no loss in aggregate central and state tax revenue.
The GST Council shall make recommendations on:
# Taxes to be subsumed
# Exemptions
# Model GST laws, Principles of Levy, etc.
# Threshold for exemption
# Rates, including floor and bands
# Special rate/rates for specified period
# Date from which GST to be levied on crude, high speed diesel, natural gas, aviation turbine fuel and petrol
# Special provisions for the Northeast, J&K, etc.
4) Approval needed in at least 50 per cent of state assemblies: It will be sent to the state legislatures for their clearance and to become a law it has to be passed by 16 of the thirty-one states and Union Territories. The Finance ministry says it is optimistic of receiving these approvals within 30 days.
5) Following this, the Central GST (CGST) legislation is expected in Parliament in the Winter session and the State GST (SGST) will have to be passed by respective state assemblies. The procedure could cause delays depending upon the interests and the pace of work of each state.
6) Also, the GST Network (GSTN), that will form the IT backbone for the entire levy, needs to be evolved. According to the Revenue Secretary, the implementation of the GST requires 6,000 assessing officers. The preparations, he said, were on and would be completed by December this year.
Political hurdles
With Assembly elections due in several states before April 2017, the results could potentially influence the national mood towards regression rather than reform.
Tamil Nadu is already opposed to the bill, which terms it as an infringement to state rights and an assault on country's federal system.
The CPM’s (two states) Sitaram Yechury has already signaled his unhappiness with some of the provisions.
The Shiv Sena is opposed to the perceived loss of octroi revenue to India’s richest municipal corporation that it has long controlled and mulcted.
Moreover, the Congress has also sought an assurance that the amended Bill when brought to Parliament, is introduced as a Finance Bill and not a Money Bill, effectively meaning that both Houses discuss it instead of just the Lok Sabha. Pertinent to note here is that it is the Rajya Sabha where the GST Bill has faced where maximum obstruction due to the government’s poor numbers.
Congress is insistent that the whole of Parliament decide the GST rate, so it's not set at "the whims of the executive", as the Congress's P. Chidambaram said in the Rajya Sabha.
Painting itself as a voice of the common man, Congress has asked for the lower indirect tax rates.
"People of India expect low indirect taxes. There are many voices in the govt which speak for the corporate, but someone must speak for the people. The standard rate of GST should not exceed 18%," the former finance minister said.
So a swift passage through these gruelling procedures and overcoming the political hurdle before April 1, 2017 will be a big challenge for the Modi government, one that it expects to achieve and the country hopes it does.
