GST: Important, so you will find a way
Jaitley is right in proposing GST from July 1. Much that could not be done in years will get accomplished in six weeks after mid-May
Finance Minister Arun Jaitley is sticking to the dateline of July 1, 2017 for the launch of the goods and services tax (GST). Described as a reform of unparalleled importance in independent India, GST will subsume as many as eight central and nine state taxes under it. Its colossal nature is clear from the projected eight million taxpayers filing 37 tax returns every year and 3.5 billion invoices every month.
How prepared is the country for this transformative reform? The Central GST (CGST), Integrated GST (IGST), Union Territory GST (UGST) and GST Compensation to States Acts received the assent of the President on April 12, 2017. Five states — Bihar, Chhattisgarh, Jharkhand, Rajasthan, and Telangana — have passed their State GST (SGST) Acts, others are expected to follow suit by end of the month,
GST Network (GSTN), established in March 2013, has been working to set up a common and shared information technology (IT) infrastructure for the Centre and states and provide a uniform interface for GST payers all over India. GSTN is particularly important for administering IGST and for running the matching engine for validating input tax credit, and reversing and reclaiming such credit, if necessary. Existing payers of the taxes subsumed under the GST will have to migrate to the GSTN and obtain new registration numbers. Migration involves enrolment, and then registration after receipt of additional information and documents prescribed under the GST laws. The enrolment process was started in November, 2016 with a phased enrolment plan for each state. The enrolment deadline has already been postponed at least twice — from January 31 to March 31, and then to April 30, 2017. With many existing taxpayers, for example over two-thirds of service tax payers, not yet enrolled, another extension is rumoured.
While the details of the primary legislation relating to CGST, IGST, SGST, UTST, and GST compensation to the states are settled, the specifics of the rules needed to enforce the laws are not. These secondary or delegated rules, to be notified by the Centre and states, are essential to fine tune the operational aspects. Only the details of five rules on filing tax returns, registration of entities, payment of GST, invoicing, and refunds are final after approval by the GST Council. Four others — on input tax credit, valuation of goods and services, how to opt for composition levy, and transitional provisions — are not. The software needed to run the automated GSTN system will have to be tweaked in conformity with the rules once they are decided.
Apart from a nil rate on essential items, GST will have a four-tier rate structure of 5 per cent, 12 per cent, 18 per cent and 28 per cent. Items of use by the masses will attract 5 per cent, and luxury items will attract a rate of 28 per cent. In between, 12 per cent and 18 per cent will be the two standard rates. Broadly, the GST rate on a good or service will approximate the sum total of the duties that the tax subsumes. But, when the sum total of such duties falls between two rates in the four-tier structure, some uncertainty remains whether it will be jacked up or down to conform to the structure. Furthermore, the rate on precious metals is not yet known. Neither is the list of specified luxury and demerit goods on which a cess — including its rate — over the peak rate of 28 per cent will apply for a period of five years to compensate states for any revenue loss on account of GST implementation. The next GST Council meeting in Srinagar during May 18-19, barely six weeks before GST kicks in will settle these issues.
So, is India “rushing” into GST? Definitely not. The idea of ending the distinction between goods and services underlying the indirect tax structure and introducing GST has been around since 1994 when the Government of India got the report titled “Reform of Domestic Trade Taxes in India: Issues and Options”, also called the Amaresh Bagchi report, from the National Institute of Public Finance and Policy. It has been a long wait even after 2000, when then Prime Minister Atal Bihari Vajpayee set up the Empowered Committee of State Finance Ministers headed by West Bengal Finance Minister Asim Dasgupta to streamline the GST model to be adopted, or since 2006 when then Finance Minister P Chidambaram, in his Budget speech, proposed introduction of the GST from April 1, 2010.
Only a crisis brings out the best of Indian politicians and bureaucrats. Perhaps Ryan Blair, the American writer, knew about them when he wrote “If it is important to you, you will find a way. If not, you’ll find an excuse.” Finance Minister Arun Jaitley is right in proposing GST from July 1. Much that could not be done in years will get accomplished in six weeks after mid-May.