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The Big Picture- GST Constitutional Amendment Cleared: What’s The Road Ahead?

The Big Picture- GST Constitutional Amendment Cleared: What’s The Road Ahead?

The first major milestone has successfully been crossed with the passing of a unified Goods and Services Tax Bill almost unanimously in the Upper House. This is just the beginning of a big task that lies ahead in order to accomplish a significant goal of rolling out GST by 1st April 2017.

Roadmap Ahead:

Some of the processes and steps required now to make “one nation, one tax” a reality are as follows:

Legislative:

  1. Among the first tasks ahead is the drafting of the Central and State GST laws that will again be required to be passed in the Parliament and ratified by more than 50% of the State Legislatures.
  2. Another issue is whether the GST legislation should be a money bill or a financial bill. If it is proposed to be a money bill then the Rajya Sabha can only discuss and not vote on it.

If it is passed as a financial bill, then Rajya Sabha can vote, pass or reject it even if it has not been introduced in the Rajya Sabha.

Economic:

  1. It has to be determined what rate structure for tax has to be adopted to incentivize compliance and at the same time generate enough resources. It is a well-known fact that GST is an indirect tax and the most important feature of indirect tax is that it is regressive. Therefore, adopting a particular cap rate becomes vital; otherwise the GST rate can easily go on increasing leading to an increase in India’s income inequality.

Political:

  1. The governance within the GST Council is also going to affect the implementation of GST. The states might have conflict over the issue that an economically larger state contributing more to the GST should have a greater say in the Council.
  2. There is a need to pay attention on the requirements of smaller states. If a high threshold for GST exemption is adopted, then almost all businesses of such states will be exempted from tax.

Technological:

  1. There is a requirement for a sound technological infrastructure as the IT backbone for the new tax regime will aim to reduce taxpayer interface with departments for activities like registration and filing of returns. For rest of the functions as well, it has to be made clear whether there would be coordination between departments at central and state levels.

A Possible Pitfall That Might Happen:

The primary area for concern of states will be to prevent revenue loss at any cost. In this regard, the empowered committee of finance ministers uses a concept Revenue Neutral Rate (RNR). RNR is the uniform rate which when applied will leave all the states with the same revenue as before. Therefore, no state will lose by accepting GST. In order to nullify the fear of states, RNR might be loaded with every possible existing tax (excise duty, octroi etc.). This is going to escalate RNR and hence it might increase inflation in the economy and job losses in the unorganized sector.

Although there are a few major decisions which have to be taken before GST rolls out, but for now it is a matter to rejoice that even after so much delay GST has got consensus and has evolved in a much better shape than expected.