Given the present circumstances the constitutional amendment for the introduction of GST is likely to take time. The government has set a deadline for launching it by April 2016 and is making every effort to get the activities closed in time. However, with a bill of this magnitude and wide ranging impact on the Indian economy it is a tough call to meet the deadline. The only way to move ahead would be to start the concurrent activities in a bid to have everything ready on time.
A very good example is the Pharmaceutical industry which has started the preparation almost six month back with the assumption that the bill is likely to be introduced from April 2016. The preparation by the industry is a significant step as it shows that they have already accepted the GST bill given its positive impact for them. Secondly they want to be prepared with the actions to adapt the bill immediately on introduction.
The Entrepreneurs have understood that if they work on the salient features of the bill from now onwards they may be in a better position to switch to the new regulations easily. It may give them a head-start over the competition and catapult them into the lead. Those ready with the suitable alternatives in case of any adverse condition arising out of the GST implementation, would find it easy to manage the show till the dust settles.
An initiative from the government in this direction would be a welcome change. Without taking recourse to amend the constitution, if the government works out a parallel plan to convert the domestic indirect taxes into a GST at the manufacturing stage by April 2016, it will be a big step. This would set the ball rolling for the full-fledged transition to the GST as and when the GST constitutional amendment is through. Furthermore it will be a clear direction for the states to follow the reform path.
The bill of such magnitude will definitely have some flaws. The 1% tax on inter-state transaction is one of the shortcomings which goes against the principle of destination based taxation. The states have the revenue of almost 35% from the sales tax on diesel and motor spirit. Its exclusion from GST is not being digested by the states. One way is to include it and have a separate carbon tax. Similarly the alcoholic products can also be included in the GST with a separate alcohol tax on them. However all these possibilities only tend to add the number of taxes applicable, when the GST bill proposes to subsume a number of taxes?
The bill in the parliament is only a framework. The working aspect and functional details are the responsibility of the GST council, which will be framed after the GST Bill passed. Multiple issues are likely to erupt when the council begins it work. They will not only have to resolve the issues but also have to negotiate the structure and operation of the GST. The GST that is likely to come out of the compromise formula will still have a lot of uncertainty.
Recently five Committees have been constituted by the Empowered Committee of State Finance Ministers (EC) to deal with the various aspects of work relating to the introduction of GST. The Committees are:
(i) The Committee on the Problem of Dual Control, Threshold and Exemptions in GST Regime;
(ii) The Committee on Revenue Neutral Rates for State GST & Central GST and Place of Supply Rules (A Sub-Committee has been constituted to examine issues relating to the Place of Supply Rules);
(iii) The Committee on IGST & GST on Imports (A Sub- Committee has been set up to examine issues pertaining to IGST model);
(iv) The Committee to examine Business Processes under GST Regime (Three Sub-Committees have been constituted to examine issues pertaining to Registration & Returns, Refunds and Payments);
(v) The Committee to draft model GST Law (Three Sub-Committees have been constituted to draft various aspects of the model law);
CBEC officials, as members of these Committees / Sub-committees, are playing a significant role in the work relating to design and contours of the proposed GST regime. A GST Cell headed by a Commissioner level officer has been created within CBEC which functions in close coordination with TRU. Three Groups have been constituted by CBEC to work on various aspects of the GST.