A 1 July roll out of the ambitious goods and services tax (GST) will appear an almost done deal for the Narendra Modi-government with the four supporting legislations set to get passed in Lok Sabha, but in reality there are many implementation hurdles to meet the short deadline.
The four Bills—Central GST Bill, Integrated GST, Compensation Bill and Union Territory GST Bill - will need the Parliament nod, while the state GST Bill will have to be passed in respective state assemblies. Once this part is done, tax officials will be pushed to prepare the infrastructure ready for the 1 July roll out. One needs to wait and watch whether the industry and bureaucrats will be ready for a full-fledged roll out by the proposed deadline.
To begin with, Goods and Services Tax (GST), conceptualised originally as a one nation one tax rate, is everything but that in its current shape. There are five different tax slabs, beginning with zero rate, 5 percent, 12 percent, 18 percent and 28 percent. Above this, there will be additional cess and levies to be imposed on sin goods (such as tobacco products) and luxury items. The rationale behind the additional cess is that this money will be needed to compensate the losses of the states against their projected revenues in the initial five years of the GST regime.
But, the reality is that various tax rates will continue, not one single rate. Also, the compliance process for companies will not remain as simple as it is hyped. Under the GST regime, a company operating pan-India will have to go for multiple registrations in different states. This means compliance issues will continue.
As it appears now, 1 July will be a tough deadline for both the central and state governments. There is still considerable uncertainty over the exact method of division of power between the two (Centre and states) on the assessment of big and small companies. As per the understanding in GST council between government and states, the latter will have powers to assess and administer 90 percent of the companies under Rs 1.5 crore annual turnover, while the remaining would be controlled by the Centre. When it comes to taxpayers with more than Rs 1.5 crore turnover, states and the Centre will share the control in a 50:50 ratio. This process will be complex and time taking. Also, with only three months left for the expected roll out (1 July), there is still no clarity on the categorisation of products that should go into different tax buckets. These issues came up in the GST discussion in Parliament on Wednesday with interesting questions like, “is Kit Kat a chocolate or biscuit”, “Coconut oil is used for edible oil in Kerala, but in North India this is a hair oil, so which tax rate will apply”.
If the government needs to roll out GST by 1 July, it will have to work overnight to complete this complex process of categorisation. Else, this can create confusion and litigations on taxes. During the debate on Wednesday, many states expressed concern on their revenue loss and classification issue of various goods and commodities in the new regime. One of the questions repeated in the debate is that what will happen if revenue losses continue for states after the promised period of five years. Whether the Centre continues to compensate states or states will have to fend for themselves? This issue too will come up in a big way before the government in the implementation stage.
Looking beyond the implementation challenges, GST roll out will get Modi-government’s lost reform-focus back and will augur well for the broader economy after the initial hiccups. Tax experts have raised caution on a hurried roll out of the landmark tax reform before the infrastructure gets ready for the massive change. It is not clear how far the tax infrastructure is ready. GST’s success will depend much on the implementation efficiency. As it appears, 1 July roll out looks a tall order for the Modi government given the huge implementation challenges.
Published Date: Mar 29, 2017 16:39 PM | Updated Date: Mar 29, 2017 16:56 PM