Rajya Sabha won’t be the cause of Jaitley missing 2016 deadline for GST

Rajya Sabha’s decision to refer the Goods and Services Tax (GST) constitutional amendment bill to a select committee is probably a blessing in disguise and is unlikely to cause further delay in the rollout of a new indirect tax system in India.

A select committee is an ad hoc committee formed by a house to closely scrutinize a bill when it comes up for a discussion. The GST select committee in Rajya Sabha now has an opportunity to rectify what may have been a drafting error in the constitutional bill cleared by Lok Sabha.

Finance minister Arun Jaitley last year agreed to an ungainly compromise in GST architecture in order to persuade states with a big manufacturing base, particularly Gujarat, to sign on to the new tax system. For a short period after the introduction of GST, states will be allowed to levy a tax on goods produced in their states and sent across the state borders to other parts of India.

It is a short-term measure meant to soothe anxieties of states who fear a shift to a consumption-based tax, which is what GST is meant to be, will adversely affect revenues. Currently, states’ indirect tax system is a blend of taxes on consumption (VAT) and production (Central Sales Tax).

The wording of the constitutional amendment bill which was passed by Lok Sabha allows for levy of tax on supplies of goods in the course of inter-state trade. This will be a source of problem because if a company moves goods from its warehouse located in one state to another one of its locations in another state, it will need to pay a tax. In other words, even when there is no sale, a tax will have to be paid.

This problem can be fixed by Rajya Sabha’s select committee.

That leads to the big question. Will the select committee’s examination of the bill and subsequent debate in Rajya Sabha in the next parliament session leave enough time for NDA government to meet finance minister Arun Jaitley’s deadline of 1 April 2016 to roll out GST?

Prior to answering this question, it makes sense to take a look at where we are in terms of preparations.

According to Amit Sarkar, partner, Grant Thornton,the constitutional amendment bill answers just one of five questions that need to be answered before complying with a tax law.

The five questions that need to be answered are: What is the taxable event? What is the taxable value? Who is the person liable to pay tax? Where is one liable to pay tax? In what format should business returns be furnished?

The constitution amendment bill answers just the first question, that is, the one on taxable event. Details of all the other issues are being worked out in negotiations between centre and states. Therefore, even if the Rajya Sabha had cleared the GST constitutional amendment bill, the lion’s share of the work needed to operationalize GST would still have to be done.

The operational details will be worked out even as Rajya Sabha’s select committee carries out its scrutiny. In that sense, there is unlikely to be a delay in rolling out GST just because Rajya Sabha did not clear it in the budget session.

As to the question of meeting Arun Jaitley’s deadline, it now seems impossible as it was an overambitious target. There is a lot of work to be done before companies can get their backend ready to deal with an entirely new tax system. And most of this work cannot be done till operational details of GST have been announced by governments. The most likely date for roll out of GST, assuming there are no more significant delays, is April 2017

Source: http://blogs.timesofindia.indiatimes.com/cash-flow/rajya-sabha-wont-be-the-cause-of-jaitley-missing-2016-deadline-for-gst/

One Reply to “Rajya Sabha won’t be the cause of Jaitley missing 2016 deadline for GST”

  1. Abhinandan kumar jain says:

    Every bill passed by the look sabha either passed by the rajya sabha within 14 days.Or returned back to look sabha for reconsideration
    After passing second time it should be passed by Rajaya sabja.I think if there is congress govt.every bill passed by two houses .but due to minorty in Rajaya shabha they cannot do it
    It means persons forming a govt.should also check his status in both houses.

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