The passage of the Constitution Amendment Bill by the Rajya Sabha on Wednesday to enable the Goods and Services Tax regime may be a big breakthrough for the NDA government’s reforms agenda, but it cannot afford to rest easy as several hurdles remain to be crossed on a war-footing to roll out the new indirect tax regime from April 1, 2017.
Pushing the implementation date further could dampen the BJP’s prospects in the 2019 general election, as global experience of the transition to a GST regime suggests that the first one or two years see a negative impact of higher inflation and a temporary dip in growth before the economic fruits of a common national market kick in.
“The government would try hard to implement it from April 2017, as April 2018 would be too close to the polls and risky for the government to gamble its electoral prospects on,” said a Mumbai-based chief economist of a conglomerate, who requested not to be named.
While Finance Minister Arun Jaitley had earlier hinted that implementing the new regime from the middle of a financial year — say October 1, 2017 — is a possible option, industry has warned it would be a messy exercise.
However, a January 2018 rollout could also be considered with the government recently setting up a panel to examine switching the financial year from April-March to January -December.
'States must expedite Bills to meet deadline’
“The timing of the rollout would be the real test of the will of this government to pursue this reform. Inflation would go up for a while before coming down, but the closer you get to 2019, it would be tempting to delay it further, or even launch it from April 2019,” said Sandeep Chinala, partner at Shardul Amarchand Mangaldas, pointing out that services such as transport, food and telecom will see a rise in tax rates from Day One of the GST regime.
The biggest challenge to meet the April 2017 deadline, according to experts, would be to get the State governments to expedite the passage of requisite legislation at their end – first, at least 50 per cent of the State Assemblies need to ratify the constitutional amendments and once the Central GST law is cleared by Parliament, all the States without exception must get their own GST laws passed.
Once the constitutional amendment is passed in the Upper House, it will need to be ratified by more than 50 per cent, or at least 15 of 29 Assemblies. The GST Council can be constituted only after the presidential assent for the constitutional amendment. By that time, the Empowered Committee of the State Finance Ministers would have to arrive at consensus on complex matters such as tax rates, exemptions, threshold limits and dual administration – and get the approval of the Council on the same.
This will be followed by passing of a Central GST law in both the Lower and Upper House, the States’ own GST laws in their Assemblies and last but not the least, getting the IT infrastructure in place and familiarising the official machinery as well as enterprises to make the transition to the new system. That several States are going to the polls soon, including Gujarat, Punjab and Uttar Pradesh, adds another unknown variable into this mix.
“Various GST legislation such as the Central GST law, Integrated GST law and 29 State GST laws including allied rules and notifications would need to be passed by the relevant legislative bodies. Meeting the timeline of implementing GST by April 1, 2017 would require these processes to run in parallel and in a time bound manner,” said Rajeev Dimri, indirect tax leader at BMR & Associates.
“It’s critical to keep the focus on GST till all these things fall into place as getting your eye off the ball on any one of these sequential steps would make it an implementation nightmare,” Mr. Chinala said, adding that the government’s move to review the financial year followed in India could help it explore a January 1, 2018 rollout for GST.
Further, P. Chidambaram of the Congress, the JD(U)’s Sharad Yadav and CPI(M)’s Sitaram Yechury, among others, seeking an assurance from the government that the other GST Bills won’t be steamrolled through Parliament in the form of Money Bills, the room for expediency is limited.
“The fact that Rajya Sabha leaders called for the subsequent GST Bills to be financial bills and not money bills means they will come up for voting in both Houses. This could add to the delays, so the April 1 deadline is possible but challenging,” said Pratik Jain, partner and leader, indirect tax, PwC India.
Then there’s the relatively small, but time-consuming matter of ironing out the anomalies in the draft model GST law that industry has raised concerns about and drafting a final model GST law after incorporating them. The vendor for developing the IT network for the GST regime is currently coding the system based on the draft law and will have to tweak it according to the final law.
While the backend for the GST network would be ready, it is critical to ensure that the lakhs of dealers who have to register online to make the ecosystem tenable are brought up to speed and the government needs to be geared up to sort out the clarifications they may need in the first year of the new regime, said a senior official who was working on the GST Network till recently.
