GST: The long wait is over, almost

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Bikky Khosla | 09 Aug, 2016
The GST will come for sure, it is only a matter of time now . With the passage of the relevant Constitutional amendment bill by both Houses of Parliament, we have taken a giant step towards the biggest tax reform since independence. First conceptualized by Atal Bihari Vajpayee 16 years ago, then introduced formally by P Chidambaram in his 2010 Budget speech, and now pushed by the Modi government -- after last week's illuminating debate and rare show of unanimity by our legislators who this time put dirty politics behind for what is best for the country -- the decade long effort to turn India into a common market by unifying a plethora of overlapping federal and state taxes finally moved closer to reality.

There is a wide agreement that implementation of the GST would be a boon for the economy. According to an estimate, the proposed single tax structure would add up between 0.5 and 2 percent to GDP, boosting investment by bringing down the cost of capital goods, lifting manufacturing and exports and creating jobs. For the government, GST will widen the tax net, providing higher barrier to tax evasion, besides bringing down cost of tax administration and tax collection. The Indian industry, overall, is also expected to benefit in a big way, as a uniform system will eliminate cascading effects of the bewildering array of current indirect taxes and businesses will be able to operate more efficiently.

Notwithstanding the euphoria, some concerns remain. First, three follow-up legislation still need approval and there must be agreement with states on some contentious issues, including the rates, dual control, exemption list and so on. Also, the IT infrastructure required for GST implementation must be readied fast. Besides, nearly 60,000 central and state tax officials have to be trained on the new tax infrastructure and relevant laws. Considering the work that remains, it does not look an easy task to roll out the legislation on April 1, 2017. Some experts have also viewed that shifting to GST may impact growth and inflation in the short run. These concerns need to be taken into account.

The Indian industry, despite welcoming the development with open arms, has found itself in a fix over a number of issues. Several sectors are of the view that some GST provisions could erode their profits and competitiveness. Some others are pointing out flaws and ambiguities in the bill. SMEs in manufacturing sector are apprehensive as they think that aspects like excise exemption will disappear while their service sector counterparts fear that their tax burden will be greater. In addition, the GST transition will require our businesses too to be ready with proper infrastructure and human resources. The Centre and state governments must work closely with industry in the coming days for an effective GST legislation and its proper implementation.

I invite your opinions.