Budget 2015: Industry hopes for clear GST roadmap but politics may be a stumbling block

By R Muralidharan & Monika Arora

The proposed dual goods and services tax (GST) in India has been through a long bumpy ride before there is finally a positive hope of it being introduced in April 2016.

The introduction of the 122nd Constitution Amendment Bill, 2014, in the winter session of Parliament reinforces the seriousness of this government to usher in the GST by next year. With the amendment bill having been introduced in Parliament, the forthcoming Union budget is eagerly awaited by the industry not just in terms of the announcements it is likely to make on the road map to GST but also in relation to the other reforms in the present indirect tax regime that will enable a smooth transition to GST.

The broad contours of the GST are well known by now. The proposed ‘Dual GST’, comprising the Central GST (CGST) and State GST (SGST) will majorly subsume the central excise duties, service taxes, additional duties of customs etc within the scope of CGST and the Value Added taxes, entry taxes, luxury tax, octroi etc within the scope of SGST.

Thus, the plethora of indirect taxes, which are at present levied at different rates and on different taxable events, would converge into a single levy in the form of GST, which, will be levied on uniform principles on the taxable event of ‘supply’ of goods or services.

In the wake of this desired uniformity, Budget 2015 is likely to introduce changes that will pave the way for GST. Among the expectations on changes, the biggest bet is that Finance Minister Arun Jaitley is expected to prune the excise exemptions and lower the threshold for registration under central excise, to bring in more parity between the taxation of goods under the Central Excise and the State VAT laws.

GST proposes common exemptions and a common threshold in the range of Rs 10-25 lakhs for levy of CGST and SGST. At present, the Central excise laws grant exemptions to more than 300 products in contrast to about a 100 products under VAT laws.

Further, the present threshold for registration under the Central Excise is Rs 1.5 crore as against a threshold of Rs 5-10 lakh under the state VAT laws. In order to bridge the gap on these two aspects, it is very likely that in this budget the exemptions on products under excise laws and VAT laws will be aligned and the threshold for central excise registration may be reduced to Rs 1 crore or lower so as to increase the tax base and to prepare small businesses for GST.

Within the central taxes, the budget may propose to align taxation of goods at a uniform rate as against the multiple excise duty rates that are currently levied on goods. As a related point, there is also an expectation on increase in service tax rate as the overall service tax incidence is likely to go up significantly under the GST regime from the present level of 12 percent and the government would want to prepare the service sector for a higher tax burden.

Bringing these changes a year ahead of GST will not only prepare the industry for GST but will also cushion them from the shock of dealing with the sea changes brought about by the GST.

Apart from the expectations on the changes in existing indirect tax laws which will pave way for GST, industry also expects the budget to lay out “a clear roadmap on GST”. This is essential for the industry to gear up their resources on aligning the business needs to the requirements under GST.

The industry’s budget expectations on GST and related reforms are quite forward looking but the materialisation of these expectations is dependent on the passing of the Constitution Amendment bill by both houses of Parliament in the ensuing budget session.

The passing of the bill in the budget session is imperative for implementation of this reform by April 2016, as one year is the minimum time required to cross the other milestones on the road to GST implementation which include the rollout of draft GST laws, interface with the trade & industry, setting up and testing of the IT infrastructures, training of officials and mobilization of tax administration machinery.

The implementation of GST may get delayed, if the passing of the bill in the budget session hits a roadblock. The fact that the present government does not have a majority in the Rajya Sabha, some major states like Bihar and Punjab are due for elections this year and that New Delhi has a new political party in power, makes the cynics doubt that the bill will be passed in the budget session and the deadline of April 2016 will be met.

The government, thus far, has shown an iron will to implement the GST and its actions so far reflect a single minded commitment to remove all roadblocks and get the buy in of all stake holders to implement this reform.

It is, thus, expected that the government will be successful in passing the bill in the budget session and in meeting the deadline of April 2016. So one can safely say that “it is time now to get ready for GST”.

R Muralidharan is senior director, Deloitte, in India, and Monika Arora, director - indirect taxes