The lines for the next GST Bill battle are drawn and they are political more than economic.
Some of the states governments have sought more than 20 percent tax rate, say media reports, giving a clear indication that deciding the rate is going to the next big political and economic battle that the country will see before the roll-out of the biggest tax reform.
Meanwhile, the government has released the road map for the implementation of the tax reform sticking to the 1 April 2017 deadline.
Here is the plan as given by Revenue Secretary Hasmukh Adhia:
1) Ratification of GST Bill from at least 16 states in 30 days
2) Cabinet nod for GST Council after President's assent
3) Recommendation of model GST laws by GST Council
4) Cabinet nod for the CGST and IGST laws
5) Similar approval for SGST by all states
6) Passage of CGST, IGST laws in the upcoming winter session
7) Notification of GST Rules by March 31, 2017
8) Software for GST to be ready by December 2016
9) Testing, integration of GST software from January-March
10) Training of state, central officials to be over by December
11) Stakeholder consultation to be completed by March 2017
12) VAT/ Service tax/ Central Excise to migrated to GST system
Finance minister Arun Jaitley has reiterated the commitment to time-bound roll-out.
"We are going to try to make it reasonably as quick as possible... it is always good to set stiff targets and try meet them, rather than have no targets at all," he said a day after the Rajya Sabha approved a constitutional amendment to pave the way for the rollout of GST.
But just how realistic is this deadline?
MS Mani, senior director, Deloitte Haskins & Sells LLP, is of the opinion that this is a difficult target to achieve.
"The announcement of the road map for GST introduction within a day indicates the determination of the government to go ahead with One Nation One Tax reform. However, as some of the key steps are slated from now onwards till March 2017, the implementation date of 1st April 2017 appears difficult to achieve," he said.
The task is indeed a Herculean one.
First and foremost, take the rate conundrum.
As noted earlier, the next big battle is going to be fought over this. According to a report in The Times of India, some of the state governments have demanded that the standard rate - which will be cover the most number of goods and services - be set above 20 percent. This is because they fear the rate proposed by the Arvind Subramanian panel, which was 17-19 percent, would not be make good for the revenue loss they may incur on account of subsuming of some of the state taxes.
The ToI report quotes a minister of the northern state saying that the rate should be 22-23 percent, while Kerala finance minister Thomas Issac has said it should be 22-24 percent.
However, the Congress has warned that the rate should not be set above 18 percent, which they think is the reasonable rate that will not hurt the common man.
“It is important that the GST rate should not be more than 18 per cent. Without mentioning the tax rate in the law, no tax can be collected. Finance Minsiter Arun Jaitley, you being a distinguished lawyer, the issues raised by us had merit. We were correct. When we talk about 18 per cent, it is not something that fell from the sky. Your CEA mentioned it in his report. The 13th finance commission also recommended the same. There must be a reason why they recommended the rate,” Congress leader Anand Sharma has told the Upper House during the debate before the passage of the bill.
The Congress leaders have prepared themselves well for the next battle. It becomes clear from they way they raised the issue of rate in the Rajya Sabha debate and later. A look at how they moved and behaved in the Upper House, beautifully captured in detail in this report in The Indian Express, shows that they are determined to campaign with all the Opposition parties and rally their support in their battle over rate.
In the end, all the parties are likely to arrive at a common ground on the issue, but it is definitely going to the most painful and time-consuming task for the Narendra Modi government. It could even the take the sheen away from the reform that the BJP wants to take credit for.
Apart from the rate, as this recent report in the Times of India says, the job will not be complete until three other legislations are passed by the Centre and states. This too could prove to be difficult task.
Standard Chartered Bank notes that negotiations within the GST Council could be prolonged. "Comprehensive negotiations between the central and state governments within the GST Council (to be set up within two months of legislative approval). These negotiations will decide on the detailed GST structure (tax rate, list of exemptions, minimum threshold for GST taxation). The discussions may be prolonged, as the finance ministers of the central government and all 29 states need to agree on these issues, and they require the approval of 75% of the GST Council," it said in a note after the GST Bill got passed in the Rajya Sabha.
The bank has laid out other three steps, apart from setting up GST Council and getting structure and rate approved, towards realising the tax reform:
For one, gettting approval of the bill from at least 50 percent of the state legislative assemblies (or 16 states). "This is likely to happen in the current session of parliament, as the ruling party is currently in power in 14 states," it says.
The GST Council issue comes the second.
Thirdly, the passage of the final GST legislation. This will include the recommendations from the GST Council. The Bill has to be passed by both houses of parliament (for central and interstate GST legislation) and all state legislative assemblies (state GST legislation only). "In order to implement the tax on 1 April 2017, the final bill will need to be ready by early 2017," it says.
Fourthly, development a new IT platform. "Successful implementation of the GST structure will depend crucially on the robustness of a new IT platform covering the central government, state governments and taxpayers. While work on this has begun, backward IT integration with states and the retraining of tax personnel are likely to be time-consuming," it says.
Although government sources were non-commital about the April deadline, they were hopeful the tax reforms could kick in by June or even a little later, the ToI report said.
"Tax experts are talking of GST kicking in midway into the 2017-18 financial year, something that the government may not be averse too although it is sticking to the 1 April launch date. Rolling out GST from April will be an uphill task," the report said quoting a consultant.
Despite the challenges, the government is making sure all the IT-related infrastructure work is completed before the deadline. In fact, the company, Goods and Services Tax Network, providing the IT backbone support for the GST expects to be ready for the rollout from 1 April next year, said a report in The Economic Times.
"Testing of the software should start by October and a beta launch of the GST portal is planned for February," the quoted the company's CEO Prakash Kumar as saying.
However, this is just the technology part, which definitely has a solution. The question is how will Jailtey negotiate the political battle over the rate.
With agency inputs