Amidst the political turmoil, the crucial question that emerges at this juncture is what the delay in passage of the Bill means for the country.
The Goods and Services Tax (‘GST’) is India’s most ambitious indirect tax reform which aims to have a comprehensive levy on manufacture, sale and consumption of goods and services. The reform is expected to integrate State economies and boost the overall growth of India as the existing federal indirect tax structure is fairly complex compared to tax structure prevalent in various developed countries across the globe.
The first step towards implementing this biggest indirect tax reform from April 01, 2016 is the passage of 122nd Constitution Amendment Bill, 2014 (‘Bill’). The amendment to the Constitution of India with special majority at both the houses and ratification with 50 percentpercent of the State assemblies is a pre-requisite for introduction of nation-wide GST so that both Centre and State would be entitled to concurrently impose GST on the supply of goods and services within a State.
The Bill also empowers the formulation of principles to determine when the supply of goods and services would constitute an inter-State transaction; such principles would be incorporated in the GST legislation that would be introduced after promulgation of the Bill.
GST which was first mooted by the UPA Government in the year 2006-07, saw a ray of hope with the smooth passage of Constitution Amendment Bill at Lok Sabha in the month of May 2015. However, after passing of Bill at Lok Sabha, the Government has struggled to get the nod of Rajya Sabha due to several controversies. The strong protest from the opposition resulted in the Rajya Sabha being adjourned sine die without any discussion on the Bill in the monsoon session.
The washout of the monsoon session without the passage of the Bill in Rajya Sabha is once again sending signals to the global investors who are keen to invest in India that there is lack of consensus in Parliament on economic reforms.
Nevertheless, the Bill’s passage in the Lok Sabha and the backend preparatory work of the Government such as building up of Goods and Services Tax Network (‘GSTN’) are being perceived as the Government’s strong commitment towards introduction of GST in India.
Amidst the political turmoil, the crucial question that emerges at this juncture is what the delay in passage of the Bill means for the country. The delay and hurdles in the passage of the Bill creates an environment of uncertainty which will result in industry having less preparation time for this major transformation, when introduced. With this, there is a loss of opportunity of replacing the complex indirect tax structure and making the country a single market.
Also, it is envisaged that India may lose 1percent to 2percent growth in GDP, which can otherwise be achieved with the introduction of GST. The delay in introduction of GST may mean losing opportune time and chance which India has to become a global manufacturing hub considering the slowdown in high growth economies like China.
Needless to add, GST implementation is seen as harbinger of industrial growth, improved business climate, simpler tax structure and GDP growth. The delay is only depriving the country of all these potential economic benefit. That apart, the business community and the global investors are losing confidence on the initiatives of implementation of new policies.
If the Government convenes a Special session after getting the regional parties on board and the Bill is passed in the Rajya Sabha, the Bill still needs to be ratified by at least 50percent of the states, before the Government can take its next steps towards implementation of GST. This whole process may result in missing in the target deadline of implementation in April 2016.
Amidst the speculations being made against the passage of Bill and introduction of nation-wide GST, the Government can use the delay period to create a robust ecosystem compatible to deal with the new levy. However, any further delay will not necessarily mean better preparation as is evident from the slow and cumbersome journey of GST so far. Therefore, it is hoped that the Bill is pushed through soon paving roadmap for implementation of the much-anticipated tax regime in 2016.