India: Transforming Indirect Taxation For The 21st Century

India:  Transforming Indirect Taxation For The 21^st Century

Most Indians, despite our million aspirations now, were brought up on socialist shibboleths and a povertarian mind-set. So, when our fractious legislature, harmonises its views for once, we are naturally gob-smacked.

The media has been gushing praise ever since the GST constitutional amendment was passed. And many sections of business and industry have been projecting robust growth as an outcome.

But first, the final amendments, and other tweaks in the draft and language, reflect a clear national consensus now.

It will therefore be amalgamated with the version passed by the Lok Sabha in 2015, and voted on afresh. And this, as early as on the 8^th of August.

Thereafter, it will be ratified by 50% of the states, each via a two-thirds majority, meaning at least 16 out of the 29; followed by the President’s assent.

The ratification will not pose any difficulties, the NDA governs 13 states currently, and the entire house, except for the AIADMK, is in favour.

The final version, was, in any case, unanimously endorsed by all the finance ministers from the states, including the AIADMK, at a recent conclave in the capital.

Bearing in mind that the tentative deadline for the GST roll-out, is April 1^st, 2017; the GST Council that will frame the operational laws has to be formed, and mandated, very quickly.

This empowered council, mostly composed of finance ministers from various states and political parties, will then draft the central (CGST), and integrated (IGST), bills; inclusive of the actual rates to be charged for items and services.

The draft laws, being path-breaking and definitive, will, no doubt, be debated in council, and informally in both houses of parliament, plus the state assemblies.

But, when they are tabled in parliament thereafter, they will most probably be qualified, citing parliamentary and constitutional precedent, as ‘money bills’; and be swiftly voted into law by the Lok Sabha.

The real time consuming task anticipated therefore, will be in the fixing of the rates to be charged.

Many goods and services may well be grouped together, to keep the rates for 70% of them, used by the poor, as low as possible.

The GST Council is also expected to lower the boom on goods and services presently taxed too high, in order to promote stymied growth and competitiveness.

Having said that, it is unlikely that the minimum GST will be, at, or below 18%, being demanded by many.

Given that the states are currently raking in between 25-29%, the attempt will be to make the new provisions ‘revenue neutral’, though the centre has promised to make up shortfalls for the first five years.

The merits and demerits of each item covered, or excluded, from GST therefore, will be gone into with deep scrutiny. And all this, to be hopefully completed by November-December 2016!

Other daunting tasks, for which, happily, a lot of the spade-work has been already done,  include the creation of an IT infrastructure and backbone, the goods and services tax network (GSTN). Its systems for state, centre, and ‘intermediaries’, its forms and formats, its testing for glitches and the debugging all have to be ready by December 2016.

A formula, for the division of the expected revenue, between the centre and the states, will be crucial to the percentages  finally suggested.

The centre and all the states will indeed have to work together, without putting in multiple sets of duplication, if the GST bus is to go anywhere at all, let alone run smoothly!

Nearly 100,000 people will have to be trained, an estimated 60,000 of them from the states and centre.

Large exemptions could sink the enterprise. Profiteering on the benefits without passing them on, could subvert its intent.

Threshold, and top limits, arrived at sensibly, will keep the GST regime healthy.

Of course, IT consultants, outsourced from the various, will no doubt be put in place, for an extended period of hand-holding, during the roll out.

However, since India is renowned as an IT powerhouse , there is no need to fear this long delayed flight into modernity.

The entire universe of commercial transaction from manufacturers to sellers will now also be registered online and operate in real-time.

Many businesses therefore, are likely to start this new journey on a fresh slate; jettisoning their old secret ledgers and stand-alone computing systems. 

Millions of traders and service organisations will have to be helped to upgrade.

In the end, complex as it may seem, this is a great reform, fit for the 21^st century, and India’s place therein.

For: ABP Live

(754 words)

August 5^th, 2016

Gautam Mukherjee