The GST Bill, India’s biggest indirect tax reform since independence is awaiting a nod, from the Rajya Sabha. The Bill which seeks to replace a slew of Central and State levies, will really transform a country of 1.3 billion people into an Indian union at least as far as trade and commerce is concerned.
This government came to power on the promise of substantial economic reforms. It has completed two years in office and while there is intent not much has been achieved in terms of “ease of doing business” on the ground. The Finance Act, 2016, which received the assent of the President on 14th May, is a mixed bag.There are quite a few amendments in the said Act which will increase problems for the taxpayer as well as litigation, both of which the Prime Minister had vowed, to reduce if not eliminate. In regard to its promise to curb the menace of black money, the record of this government is not very encouraging. Its effort at bringing black money stashed abroad into India by way of the Black Money Act did not succeed, and the Income Declaration Scheme, contained in the Finance Act, 2016 might meet the same fate.
The disappointment of trade and industry caused by the failure to meet expectations in regard to direct taxes can totally be obliterated by the Rajya Sabha passing the GST Bill. The Lok Sabha passed this Bill in May 2015, and it is absolutely imperative that the upper house of the Parliament gives its assent to this Bill as well as the Constitution Amendment Bill. For GST to become a reality, it needs to be ratified by half of the 29 states, which in itself will be a huge task.
It is widely accepted that GST will reduce costs of production, logistics costs, and transaction costs and thereby make Indian goods far more competitive. On account of the complex structure of indirect taxes where the power to legislate is with the states, it results in huge bottlenecks affecting movement of goods. This can change to a great extent with GST.
Initially, the States opposed the Bill on account of possible loss of revenue. The government has already agreed to compensate the states and this issue would no longer be a hindrance. Many of the issues raised were only with an object to stall the passage of the bill. Primarily, there were three issues raised by the major opposition Party in the Rajya Sabha. These were abolition of the 1% tax on the interstate movement of goods, the constitution of the dispute resolution body, and setting a cap in the Constitution on the tax rate.
These appear now to have been largely met. The standard rate of 18% which would apply to a majority of goods and the concessional rate of 12% would meet the principal objections of the Congress. An absolute cap on rate of GST is not very easy to accept. Except for profession tax, the Constitution does not fix a limit on any other tax, including the large number of taxes that the GST will replace. Other objections, if any, are not insurmountable.
With everyone in agreement with the fact that the GST Bill will benefit the consumer, it is time that political parties rose above political posturing, attempts to score brownie points over each other and put national interest to the forefront. It is obvious that a bill with the magnitude of implications that the GST Bill has, is bound to face some teething problems. The wrinkles can certainly be ironed out as the GST Act gets implemented.
On its part, the government must make a very sincere attempt to bring all political parties on board. It must strive to build consensus. The recent assembly results would probably serve as a shot in the arm for the ruling Party.
The regional parties, while they would always strive to protect their regional interest, will also probably realise that it is advisable for them to do business with the ruling combine. It is likely that with deft political management,the regional parties will support the passing of the Bill. Even if their support comes with a political price the government must endeavour to pass the GST Bill in the Rajya Sabha. According to experts, a simplified single tax regime will improve compliance and can certainly improve revenue collections over a period of time. This Bill is the litmus tests for the Modi government. Its passage will make the Indian citizen believe that the government means business and will also send a signal to investors all over the globe that this government has the will to convert intent into reality. “Acche din” may then truly be here.
