What India needs to do for GST to make history
After ten long years of sustained efforts, India is now poised to in-troduce the Goods and Services Tax (GST). A major hurdle in the way of its introduction was crossed on August 3 when the Rajya Sabha passed the revised GST Constitution Amendment Bill, almost unanimously, after a debate that ran on for over seven hours: a sign of vibrant democracy. Yet many challenges remain.
Constitutional amendment
For one, the next steps for getting the Constitution amended involve a clearance of the revised Bill by Lok Sabha, after which the Bill will go to the States' Legislatures where it will need to be cleared by at least sixteen States i.e. half the total number of States as well as Union Territories with a Legislature. Thereafter, the process of amendment will be completed by the issuance of a notification, after getting the President's approval.
Legislation - the bills
Then the actual legislative work begins: the implementation of GST with its three components which are Central GST (CGST), States GST (SGST) and the Integrated GST (IGST), that GST for Inter-State transactions. The IGST will, broadly, be a combination of CGST and SGST (SGST will accrue to the Destination States).
Now, post the parliamentary debates and the finance minister's follow-up press-conference on August 4, we are able to define the legislative challenges more clearly. The first challenge will be to get the two central bills, that is, the CGST Bill and the IGST Bill cleared in Parliament.
If these two Bills are considered Financial Bills, they will need to be cleared by both the Lok Sabha and the Rajya Sabha (where the ruling alliance does not have majority). The main opposition party, i.e. the Congress, along with others have demanded that these be treated as "Financial Bills" and not "Money Bills" which require clearance by the Lok Sabha only (where the Ruling Alliance has absolute majority).
The finance minister has not yet committed on this issue, saying that no assurance can be given before seeing the contents of these two Bills, which are yet to be prepared. He has also referred to the Article 110 of the Constitution.
Events so far, as well as statements from both sides, indicate that the Centre may like to push these Bills as Money Bills while the Congress and other Opposition parties will pitch for them being Financial Bills so they can have a say on their contents. We may witness a political storm of sorts over this issue.
It is expected that the content and format of the States GST (SGST) Bills to be cleared by the State Legislatures will be similar to that of the central GST Bill and in conformity with the IGST Bill for the sake of uni-formity of law and procedure in the Dual GST regime. Therefore, the passage of the states' GST Bills should wait till the CGST and the IGST bills are passed in Parliament.
Policy and administrative issues
The finalisation of policy and administrative issues between Centre and the States will be the next area of challenge. First, the "Threshold" for taxability will have to be finalised. The states have demanded a low threshold of Rs 10 lakh of annual turnover, while the Centre has insisted on Rs 25 lakh so the very small businesses can be kept out.
The committee headed by Arvind Subramanian, the chief economic advisor, has recommended a threshold of Rs 40 lakh since taxing small businesses is cumbersome and not at all cost-effective.
The second issue relates to the list of tax-exemptions that will have to be common for Centre and States. Currently, there are around 250 ex-emptions in Central Excise and 98 exemptions in State VAT. Both will have to have the same number of exemptions in the GST regime.
Thirdly, coming back to the three GST Laws as outlined in the Draft Model GST Law, circulated about six weeks back, there are differences between the Centre and the states on a few clauses including those relating to dispute resolutions between taxpayers and taxmen. These need to be ironed out quickly.
Fourthly, of late, a major disagreement has arisen between the Centre and the States over Dual Control of GST. The States have demanded ex-clusive Single Control over the assessees having a turnover less than Rs 1.5 crore; they want to administer Central GST and States GST as well as IGST for this band of taxpayers.
The Central Board of Excise and Customs, however, feels that having decided to go in for Dual Control in a Dual GST model after much delib-eration, the position that was agreed on should not be altered at this point. Keeping the interest of "Small Business" in mind, their compliance requirements like periodicity of returns filing, audit, et al, can be substantially relaxed.
In any case, the small businesses won't have to face two authorities in their routine tax compliance because three basic functions like registration, payment and filing of returns will be supported by a common IT portal, the GST Net, where the taxpayers will file, from their own offices, only one document for each of these functions at the front-end and these will get split into two at the back-end by the GST Net for the purpose of CGST and SGST authorities.
It's only in the case of dispute resolution be-tween taxpayers and taxmen (regarding tax evasion and offences) that the issue of dual control may inconvenience the assessees. To solve this, there is talk of a dispute resolution scheme that will Cross-Empower the Centre and the States with respect to each other's jurisdictions so that the assessee will have to deal with only one authority for such disputes.
It's good news that the Central Board of Excise and Customs has formed a panel to negotiate with the States and sort out such differences. Such specialised negotiations will be essential not only for finalizing the mentioned GST Laws, but also the upcoming GST Rules that will deal with procedure, formats of documents etc.
Transitional issues
The next major challenge will be the Transitional Issues relating to various areas like Registration, Utilisation in GST regime of the existing "credits" lying under the current Central Excise, Service Tax, State VAT, etc. The draft Model GST has dealt admirably with certain transition issues but there are many more which will have to be sorted out in consultation with taxpayers and other stakeholders.
Both the Centre and the States have initiated Capacity Building Programs for training their employees at different levels. Similar initiatives will have to be there for the Taxpayers, both the Small and Medium Busi-nesses and the Corporates. Further, the assessees will have to create a dedicated Program Management Team in their own set-ups for the migration to the GST regime. Current business processes will have to be analysed and compared with the ones expected in the GST regime.
The ERP (Enterprise Resource Planning, a kind of business data management software) of business entities will also have to be thoroughly reviewed. Further, there will have to be customization, i.e., appropriate changes in their IT systems, since these IT systems need to be integrated with the front-end of the common portal of the GST Net.
On the GST Net, the greatest challenge will be to make it operational at least three to four months ahead of implementation; and there must be a few "pilot runs" after that. Although assurances have poured in that the GST Net will be ready in time, not much about its functioning - particularly its interactivity with the taxpayers - has been let out into the public domain. This will be needed for the stakeholders to be able to customize their IT software.
Last but definitely not the least, it is essential for the government to set up GST Monitoring Cells at different levels of implementation of GST, and also Anti-Profiteering Cells to ensure that there is no undue profiteering by a section of the trade leading to inflation, and that the tax relief in the GST regime is duly passed on to consumers, leading to a decrease in prices.
Hence, many hurdles remain to be crossed before the GST can be ushered in. One hopes they are met with determination, the courage of conviction but also, crucially, a strict monitoring of the implementation of this new regime.