Parliament not the only hurdle for GST

DNA, August 15, 2015

All hopes of the government rolling out goods and services tax (GST), which will unify all indirect taxes into a single levy across the country, by April 1, 2016, are hanging in balance after the Monsoon session of the parliament ended on Thursday without the passage of Constitutional Amendment (122nd) Bill.

Though the government has said it would look at calling a special session of the parliament for the new tax law, very few are confident that it can be implemented within the stipulated timeframe.

M S Mani, senior director ? indirect tax ? Deloitte India, said special session of Parliament was, at best, another last ditch effort of the government to push the Bill.

He, however, said it should be done only after creating broad consensus on the indirect tax law to ensure it did not meet the same fate as it did in the latest parliament session.

“If the government decides to call a special session then the April 1, 2016, deadline would be difficult, but it can be tried. Also, the opposition has to allow its passage in the special session, for which the government will need to whip up a broad consensus,” he said.

Mani believes if the Bill is pushed to the Winter session then the 2016 deadline would be out of reach for the government.

Uday Pimprikar, tax partner, EY, expressed disappointment at the much-awaited law not being passed. “I would think that, at a basic level it is unfortunate that Parliament is not functioning and the Bill could not be passed.”

He said April 1, 2016 timeline for the GST to kick off was, anyway, a “fairly daunting task and a huge challenge even if it is passed in the special session that could be called by the government.”

According to Pimprikar, as long as the government showed serious intent and continued to be persistent about it, a few months delay wouldn’t matter much.

“Today, whether the GST Bill is coming or not is not the question. It is being supported by most parties. It has a few design issues, but that can be sorted out. And an excellent GST should not become an enemy of the good GST. Even a decent Bill, with a few compromises, will go a long way in helping the economy,” he said.

Deloitte’s Mani said missing the April 1, 2016 deadline did not mean it would be pushed to 2017 as reforms in indirect tax can be introduced at any point of the financial year.

“Unlike direct tax, where a fiscal year cycle is followed, indirect tax follows a monthly cycle. So GST’s roll out may be delayed by only a few months if constitution amendment Bill is pushed to winter session,” he said.

Mani said after having waited for over five years for GST, a few months’ delay will not hurt businesses much.

Pimprikar said a few months’ delay meant instead of GST’s impact becoming visible in short term, it would be seen over medium term.

What is making the economists sceptical about the government meeting the current deadline is the processes that still need to be completed.

After being passed in the Budget session of Parliament in the lower house, the Bill was referred to the Rajya Sabha Select Committee, comprising 21 members, that has made some amendments and recommendations.

So, it is back in the Lok Sabha for clearance. After this, 50% of the state assemblies would be required to approve it. Thereafter, it will need a Presidential assent. Once this is acquired, a GST Council will be formed within two months. This council will then work on the Bill and come out with guidelines for it.

“If the Bill had been passed (in the Monsoon session), these processes would have been completed over the next 2-3 months, but now it looks tough,” said Mani.
He said GST is the biggest tax reform attempted by the country, and its delay will send a negative signal to trade and industry.

“If it happens it will result in ease of doing business in India, compliance will be simpler and will transform the country into a common market,” said Mani.

He said a diluted or a less-than-perfect GST should not be a “show stopper”. A visibly upset finance minister Arun Jaitley, who addressed the media after the Monsoon session ended in a washout on Thursday, claimed GST would have benefited to the country. He said earlier that the uniform indirect tax will add 1-2% to the GDP growth.

“The entire country would have become an economic market. It would have led to ease of business, would have increased tax buoyancy, GDP would have benefited and goods and services would have move throughout the country. A market of this size would have been rare across the world,” he said.

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