With the winter session of the parliament ending without the passage of Constitution Amendment Bill it’s clear that the official date of April 2016 for (Goods and Services Tax) GST implementation is clearly out. But the real question that’s in everybody’s mind is whether GST will happen in 2016 or are we are looking at a date of April 2017.
First and foremost the Government needs to pass the Constitution Amendment Bill which now is expected to be taken up in the Budget 2016 session. Though one still cannot predict the political outcome of this session, what is important to note is in my view the Budget session is a long session and interruption by the opposition over such a long period may prove to be difficult. This winter session at one stage (with some political thaw) showed promise of passage in the session with the Government open to accepting the key opposition suggestions on GST design and CEA report alluding to some of those suggestions including moderate GST rates.
Also reports suggest that the number game may change in the Upper House with the government likely to gain which may provide a leverage to push through even if there is some degree of opposition. It’s equally important that Government agrees to the critical suggestions of the opposition namely the dropping of the 1% origin tax which is good for the GST design and the moderate rates (equally alluded to by the CEA report). Broadening of the base is equally critical, as again highlighted by the CEA report, though I am not sure of the collective political will on this design aspect.
Assuming the Constitution Amendment Bill is likely to get passed in the Budget session which could potentially be by March/ April 2016 followed by ratification of the requisite number of States in the following 2-3 months would take us to June 2016. Hence earliest the Government can realistically look at implementation could be October 2016 in my personal view. This is on the assumption that this being a transaction tax the Government believes this can be implemented mid-year instead of a fiscal start. Mid-year could be painful for the industry but not impossible to implement and largely industry is resigned to handle this transition if it happens as long as GST gets implemented early. Also this date looks practical as the Government would have to give some time to industry to prepare after they share the GST law, rules and business processes.
While the Constitution Amendment Bill is being passed which could potentially take us to June 2016 there are several other steps that the Government needs to parallely activate for GST to be a reality even in October 2016. First and foremost, they would have to rework the business processes documents on registration, refunds, returns and payments based on industry feedback and incorporate the same in the GST draft law and rules. I understand the same is under process. They need to place the GST laws and rules in public domain in January/ February for industry consultations and come to nearly the final shape of law in consultation with Empowered Committee of State Finance Ministers by May 2016.
This would ensure that once the GST Council is formed somewhere in June 2016/ early July 2016, the model GST law can be ratified along with the finalisation of threshold, rates etc. which can be followed with the passage of the same by both the Centre and States. This action of passage of law has to done with utmost urgency amidst political consensus within a reasonable period of time.
The finalisation of processes and law is also critical for roll out of the GST Network – the IT portal responsible for facilitating compliance under GST is an integral and critical part of GST implementation. GST Network rollout work is ongoing from what we understand; the only danger is that the delay in passage of Constitution Amendment Bill does not lead to slowing down of their processes and build out.
So is GST possible in 2016, well the timeline is tight but if there is a political will and the Government machinery is disciplined in actioning the above outlined steps within strict timelines it is possible. Failing which, the timeline will shift to April 2017.
What is critical is clarity on the implementation date as industry needs reasonable time to prepare for this big tax reform which will have a huge impact across their business. GST will have touch points across critical areas of ERP configuration, indirect tax costs, people training, supply chain re-design, pricing, margins, working capital requirements besides changes in process, controls and accounting. All these would require months of serious engagement from senior management with proactive planning while they continue to operate their existing business. Most companies are still waiting on the side lines and that could be problematic as we approach implementation. Having said that this start and stop process which currently industry is experiencing is a serious impediment, something the law makers need to realise.