GST implementation roadmap

The following activities are in line for the GST to happen to the Indian economy. The government has set a deadline of April 2016 as appointed date for implementation of the reform.

  1. The first and the foremost is the passage of the bill by both the houses of parliament. The constitution bill has to be ratified by 50% of the States, followed by the approval by the president of the country.
  2. GST counsel needs to be formulated within 30 days of passing of GST Bill. The Counsel may faces extreme challenges while addressing key issues
  3. Finalization of the revenue neutral rate (RNR) for the tax levy. This is expected in the range of around 17 to 18%. Also, the minimum threshold value will be worked out beyond which the supply of goods and services would attract GST.
  4. A consensus is required to be reached on model legislation for adoption by the states. This will help in the implementation of the GST.
  5. Notification of GST Act and Rules by central and state governments
  6. The place of supply would be determined next to arrive at the regulation where the goods and services will be taxed.
  7. The GST network based on the information technology infrastructure will come in finally to administer GST and enable the flow of credit to the government coffers.
  8. Restructuring of Central and State Tax Authorities to manage and enforce GST tax structure
  9. National wide implementation from appointed date

The first activity has already been delayed as the bill was to be ratified in the Rajya Sabha during the monsoon session. The government plans to make up the loss by convening a special two day resolution of the parliament. If it does not materialize then it will get postponed to the winter session of the parliament.

At present there is only speculation on the applicable rate of GST. If these indications are to be believed then it could be anywhere between 24 to 27%. The recent hike in the service tax to 14% is a step in the direction of reducing the disparity in the tax rate.

The GST is based on the destination based consumption principle. It means that the GST liability would finally accrue at the point where the goods were supplied to or where the service was consumed. This means the final customer will pay the GST. The very concept would not find easy acceptance with the people. A lot of education and learning has to be propagated for the people to understand the implications.

How the bill will address the unorganized sector and make sure that all transactions are brought on paper is a big grey zone. The moment it is known that the 24% amount can be saved by not reporting the transaction would be a big incentive for the final buyer. The compliance is always better when the tax rates are on the lower rung.

Initially the tax costs may increase because of the higher applicable rate of tax. However, the net burden for having to pay those taxes is likely to come down. This will happen as the credit mechanism gets streamlined. It will make the burden of the tax borne available as credit to offset the taxes that you pay.

Since the taxes will span across multiple states it will also be necessary to have clear cut rulings for the right to tax and the revenue shares of the states.

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